Question

The Pritzker Music Pavilion in downtown Chicago is a technologically sophisticated and uniquely designed performing arts venue that hosts live concerts attended by over half a million patrons a year. A group of local organizers, led by a prominent local businesswoman, would like to use the pavilion for a concert to benefit a non-profit, national network of investors and environmental organizations working with companies and investors to address sustainability challenges such as global climate change. If the pavilion management agrees to host the concert, the organizers will donate all profits to the non-profit (or absorb any losses). Based on the following revenue and cost information, the organizers would like answers to several questions. There are three sources of revenue for the concert: 1. Tickets will be sold for $15.00 each. 2. A large multinational corporation headquartered in Chicago will donate $3.00 per ticket sald. 3. Each concert attendee is expected to spend an average of $20.00 for parking, food, and merchandise. On the expense side, there are also three car parents: 1. A popular national group has agreed to perform at the concert. Normally, the group demands a significant fixed fee to perform, but to reduce the risk for the organizers, the group has agreed to perform for $6.50 per ticket sold. 2. The organizers will pay several companies to operate the parking, food, and merchandise concessions. They will pay $20,000 plus 12% of all parking, food, and merchandise revenue. 3. The organizers will pay the pavillon S90,000 plus $9.00 per ticket sold to cover its operating expenses (production, maintenance, advertising, etc.). REQUIRED (ROUND YOUR CM ANSWER TO THE NEAREST CENT; ROUND ALL OTHER ANSWERS TO THE NEAREST UNIT OR NEAREST DOLLAR.] Part A (8 tries: 8 points) 1. What is the estimated contribution margin per ticket sold for the benefit concert? 2. What are the estimated total fixod costs for the benefit concert? Submit Answer Tries C/A Part B (8 tries; 8 points) 1. What is the estimated profit from the benefit concert if 8,500 tickets are sold? 2. How many tickets must be sold in order for concert profit to be $100,0007 3. Assuming a tax rate af 39% on profits from the concert, what must dollar ticket sales be in order for after-tax carcert prafits to be $100,0007 Submit Answer Tries O/A Part C (4 tries: 4 points) 1. Assume that the organizers can negotiate the fixed portion of the pavillon's operating expenses. If the organizers expect to sell 8,500 tickets, how much operating fixed costs can they afford to pay and still earn a profit of $100,000 (Ignore taxes)? Subiril Answer Tries 0/4 Post Discussion Send Feedback

Answer 1

	Part A:
1	Contribution margin per ticket sold:
							$	$
	Revenue:
	Ticket sale							15
	Donation							3
	Parking,food and merchandise							20
								38
	Less: Variable costs
	Performance fee						6.5
	Cost to operate parking,food and merchandise					(20*12%)	2.4
	Payment to pavillion						9	17.9
	Contribution margin per ticket sold							20.1
2	Fixed costs:
						$
	Cost to operate parking,food and merchandise					20000
	Pavillion's operating expenses					90000
	Total					110000
	Part B:
1	Estimated profit:
					$
	Contribution margin		(8500*20.10)		170850
	Less: Fixed costs				110000
	Estimated profit				60850
2	Number of tickets to be sold=(Fixed cost+Desired profit)/Contribution margin per ticket sold=(110000+100000)/20.10=10447.16=10448
3	Profit after tax=$ 100000
	Tax rate=39%
	Profit before tax=(100000/61)*100=$ 169934.40
	Lets find the number of units to be sold to earn a profit of $169934.40 using the following euation
	Number of tickets to be sold=(Fixed cost+Desired profit)/Contribution margin per ticket sold=(110000+169934.40)/20.10=13927.08=13928 tickets
	Part C:
1	Number of tickets to be sold=(Fixed cost+Desired profit)/Contribution margin per ticket sold
	We can use this equation to find out fixed cost as follows
	8500=(Fixed cost+100000)/20.10
	Fixed cost+100000=8500*20.10
	Fixed cost+100000=170850
	Fixed cost=170850-100000=$ 70850
	Cost to operate parking,food and merchandise=$ 20000
	Pavillion's operating expenses fixed portion=70850-20000=$ 50850