Question

P21-55A Calculating break even sales and sales to earn a target profit; preparing a contribution margin income statement England Productions performs London shows. The average show sells 1,300 tickets at $60 per ticket. There are 175 shows per year. No additional shows can be held as the theater is also used by other production companies. The average show has a cast of 65, each earning a net average of $340 per show. The cast is paid after each show. The other variable cost is a program-printing cost of $8 per guest. Annual fixed costs total $728,000. Requirements 1. Compute revenue and variable costs for each show. 2. Use the equation approach to compute the number of shows England Productions must perform each year to break even. 3. Use the contribution margin ratio approach to compute the number of shows needed each year to earn a profit of $5,687,500. Is this profit goal realistic? Give your reasoning 4. Prepare England Productions's contribution margin income statement for 175 shows performed in 2018. Report only two categories of costs: variable and fixed.

Answer 1

Answer 1 :

Sales Revenue per show = 1300 Tickets x $60 per ticket (SP per ticket )

Sales revenue per show = $ 78,000

Variable cost per show:

Cost of performance = $65 Nos x $340 per show = 22,100

Cost of program= 1300 ticket x $8 = 10400

Total variable cost per show = 32500

Answer 2

In BEP

Revenue -(variable + fixed cost) = Target profit

Therefore,

($78,000 x No of shows)-($32500 x No of shows)- $728000 =$0

$45,500 x No of shows =$728,000

No of shows = $728,000/$45,500

No of shows = 16 shows

Answer 3

Contribution Margin Ratio = Contribution / Sales

Contribution per show = $78,000(sales) - $32,500(variable cost)

Contribution per show = $45,500

Contribution margin ration =$45,500/$78,000

= 58.33%(apporx)

BEP (In$) = Fixed cost + target profit / contribution margin ration

= $728000+$5,687,500 / 58.33%

BEP (in$) = $10,998,000

BEP (in shows) = BEP (in$) / revenue per shows

BEP (in shows) = $10,998,000 / $78,000

BEP (in shows) = 141 shows

Yes, the profit goal is realistic. Since the actual number of shows (175 nos) is more than the 141 Shows (Shows required for the profit of $5,687,500).

Answer 4

Contribution Margin Income Statement
For the year ended 2016
Sales Revenue - $78,000 X 175 Shows	13,650,000
Less: Variable Costs - $32,500 X 175 Shows	5,687,500
Contribution	7,962,500
Less: Fixed Costs	728,000
Net Operating Profit	7,234,500