Question

A television station airs network programming between 9am and 10pm.  Between 10 p.m. and 9 a.m., they broadcast programming of their choice .  This costs them  $500 in additional costs per night.  During the night slots they sell airtime to infomercials at the following selling prices:

 

Timeslot	Slot Times	Hours per slot	Selling Price   per hour of airtime	Total timeslot   airtime revenues (hrs x selling price)
Night	10pm to 1am	3 hours	$150	$450
Late   Late night	1am to 4am	3 hours	$20	$60
Pre-dawn	4am to 6am	2 hours	$1	$2
Morning	6am to 9am	3 hours	Note 1	Note 1

 

Instead of airing infomercials, the televisions station can instead choose to buy the rights to broadcast classic movies and sell advertising time during the commercial breaks.  The cost to buy the rights to a classic movie is $20/hour.  Advertising during a classic movie can generate the following revenues per timeslot:  Night slot $2,000, Late Late slot $680, Pre-dawn slot $45, and Morning slot $495.

 

For example, during the Night slot, they can either sell airtime to an informercial for $450 or they can buy the rights to run a classic movie for $60 (3 hours x $20/hour) and sell advertising during the commercial breaks for $2,000.

 

(Note#1:  The price for selling morning airtime to infomercials is unknown.  Management is not interested in running infomercials during this timeslot because they would instead prefer to air children’s classic movies)

 

Required

A.    Name the possible method(s) to allocate the $500 nightly broadcasting costs.

 

 

B.      Based on your response in Part A, identify which method(s) is(are) not possible to use in this situation.  

 

C.       The Pre-dawn time-slot generates minimal revenues.  Briefly explain how and why you may want to treat this time slot differently than other time slots when considering how to allocate the $500 broadcasting costs. 

 

D.    Allocate the $500 broadcasting costs based on the most appropriate method.  Marks for this question are based on your choice of method used to allocated costs and consideration for treating any of the time slots differently than other time slots as identified in part C (5 marks).