Question

1. Big City Orchestra, Inc. produces a five-concert series every year. Its concert hall has 3,300 seats, all of which sell for $40 per ticket per concert. Variable costs are estimated to be $2 per ticket, related to printing, promotions, and mailings. Fixed costs, including salaries and operating expenses, total $427,500 per year. The orchestra averages 70% attendance per concert.

What is the breakeven point in dollars of ticket sales?

What is the breakeven point in tickets per concert?

What is the expected total sales in dollars and units (tickets)?

What is the projected net income at its expected sales level?

What is the orchestra’s safety margin in sales dollars and tickets?

How many tickets would need to be sold this year in order to earn enough profits to enable the orchestra to purchase a new pipe organ that costs $96,900? What would average attendance need to be to achieve this?

Answer 1

1. What is the breakeven point in dollars of ticket sales?

Break even means contribution should equal fixed cost. the same is calculated below

Rate per ticket - A	40
Variable cost - B	2
Contribution = A- B	38
Fixed cost	427,500
Fixed cost/contribution= tickets for break even	11,250

Hence the total tickets in a year for breakeven is 11,250

2. What is the breakeven point in tickets per concert?

There is no information with respect to how the fixed costs are spread over the concerts. However if the fixed costs are spread eqally per concert then fixed cost per concert is 427,500/5 = 85,500

Break even then shall be

Rate per ticket - A	40
Variable cost - B	2
Contribution = A- B	38
Fixed cost per concert	85,500
Fixed cost/contribution= tickets per concert break even	2,250

Hence the tickets per concert for breakeven is 2,250

3. What is the expected total sales in dollars and units (tickets)?

The expected sales is computed as given below

Concerts per year	5
Tickets per concert	3,300
Max Tickets issued in a year = concerts per year x tickets per concert	16,500
Rate per ticket	40
Maximum Annual revenue = tickets issued per year x rate per ticket	660,000
Expected tickets - 70% x max tickets issued in a year	11,550
Expected sales - 70%	462,000

4. What is the projected net income at its expected sales level?

The below is the computation

Particulars	Amount
Sales (70% capacity) = 11,550 tickets x $40	462,000
Variable cost = $2 x 11,550 tickets	23,100
Fixed Cost	427,500
Total Cost	450,600
Net Income	11,400

5. What is the orchestra’s safety margin in sales dollars and tickets?

The net income is positive which is 11,400. The tickets covering this saftey margin is 11,400/ contribution per ticket $38 = 300 tickets

6. How many tickets would need to be sold this year in order to earn enough profits to enable the orchestra to purchase a new pipe organ that costs $96,900? What would average attendance need to be to achieve this

Particulars	Amount
Pipe organ cost	96,900
Fixed Cost	427,500
Total Target	524,400
Contribution per ticket	38
Total ticket sales = total target/contribution per ticket	13,800
% attendance = total ticket sales/ max capacity of 16,500	84%

Hence ticket sales should be 13,800 and attendance should be 84%