questionacc2

Calculating break even sales and sales to earn a target profit; preparing a contribution margin income statement.

Green 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 program-printing cost of $8 per guest. Annual fixed costs total $728,000.

1. Compute revenue and variable costs for each show.

2. Use the equation approach to compute the number of shows Green 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 Green Production’s contribution margin income statement for 175 shows performed in 2016. Report only two categories of costs: variable and fixed.

P20-34A Given
Average Tickets sold
1300
Cost per ticket
$60
Number shows per year
175
Average number of cast
65
Average net earnings per show $340
Program printing cost per guest$8
Annual fixed costs
$728,000
P20-34A Req 1.
Sales Revenue per show
Num of tickets
Cost of ticket
Sales Revenue per show
Variable Cost per show
Cost of performers
Number of performers
Earnings per show
Cost of performers
Cost of programs
Number of guests
Cost of printing per guest
Cost of programs
Variable Cost per show
P20-34A Req 2.
Number of shows to break even
Net Sales Revenue – Variable Costs – Fixed Costs = Target profit
P20-34A Req 3.
Earn a profit of $5,687,500
Contribution Margin Ratio
Contribution Margin Ratio = Contribution Margin / Net Sales Revenue
Contribution Margin = Net Sales Revenue – Variable Costs
Net Sales Revenue
Variable Costs
Contribution Margin Ratio
Required Sales in Dollars
Required Sales in Dollars = Fixed Costs + Target Profit / Contribution Margin Ratio
Fixed Costs
Target Profit
Required Sales in Dollars
Requires Sales in Units
Required Sales in Units = Required Sales in Dollars / Sales Price Per Show
Requires Sales in Units
Shows
P20-34A Req 4.
Green Productions
Contribution Margin Income Statement
For the Year Ending December 31, 2016
Sales Revenue
Variable Costs
Contribution Margin
Fixed Costs
Operating Income