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 Ceres, 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 Ceres (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 $16.00 each 2. A large multinational corporation headquartered in Chicago will donate $2.00 per ticket sold 3. Each concert attendee is expected to spend an average of $19.00 for parking, food, and merchandise. On the expense side, there are also three components 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 $7.00 per ticket sold. 2. The organizers will pay several companies to operate the parking, food, and merchandise concessions. They will pay $20,000 plus 13% of all parking, food, and merchandise revenue. 3. The organizers will pay the pavilion $100,000 plus $9.00 per person attending 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 fixed costs for the benefit concert? Tries 0/8 Submit Answer Part B (8 tries;8 points) 3. What is the estimated profit from the benefit concert if 11,000 tickets are sold? 4. How many tickets must be sold in order for concert profit to be $100,000?

Answer 1

part A 1) First calculate the variable cost and revenue per ticket. Variable cost per ticket Revenue per ticket Performance fees of group Price of ticket 7 16 Expenses of parking food 13% of revenue (19 x 13% Donation per ticket 2.47 2 Operating expenses of pavillion Revenue from parking food and merchandise 19 Total variable cost per ticket Total sales price per ticket 18.47 37 Contribution margin is difference between revenue per unit and variable cost per unit Hence contribution margin per ticket Revenue per ticket variable cost per ticket 37- 18.47 $18.53 per ticket. Part A 2) Now calculate Fixed cost per concert Expenses of parking, food 20000 Operating expenses of pavillion 100000 Total fixed cost per concert 120000 Part B 3) Profit will be excess contribution earned over the fixed cost per concert. Hence estimated profit contribution margin fixed cost per concert (18.53 x 11000 tickets) 120000 83830 Part B 4) From above equation for estimated profit, we will get following equation Estimated constibution margin desired profit +fixed cost per concert 100000 120000 220000 Now, estimated number of tickets sold estimated contribution margin /contribution margin per ticket Estimated number of tickets sold 220000 /18.53 11873 Tickets