Question

England Productions performs London shows. The average show sells 1,300 tickets at $60 per ticket. There are 150 shows a 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 income statement equation approach to compute the number of shows England Productions must perform each year to break even.
3. Use the contribution margin 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' contribution margin income statement for 150 shows performed in 2012. Report only two categories of costs: variable and fixed.

Answer 1

Answer:

England Productions

1. Revenue and Variable costs for each show:

Revenue = 1,300 x $60 = $78,000

Variable costs =

Direct labor = $340 x 65 = $22,100

Direct materials = $8 x 1,300 = $10,400

Total variable costs = $32,500

2. The number of shows to perform each year to break-even, using the income statement equation approach:

to break even, the Total Revenue = Total Costs

Total Revenue per annum = $78,000 x 150 shows = $11,700,000

Total Costs = Fixed Costs + Variable Costs

Total costs per annum = $728,000 + $32,500 x 150 shows = $5,603,000

Therefore, to break even, total revenue must be equal to $5,603,000

3. Contribution Margin approach to earn a profit of $5,687,500

Contribution per show = Revenue minus Variable Costs

Contribution = $78,000 - $32,500 = $45,500

To earn a profit of $5,687,500, the number of shows will be equal to fixed costs + profit divided by contribution margin per show

($728,000 + $5,687,500) / $45,500 = 141 shows.

4. England Productions' Contribution Margin Income Statement for 150 shows performed in 2012:

Sales Revenue           $11,700,000 ($78,000 x 150)

Variable costs             $4,875,000 ($32,500 x 150)

Contribution Margin $6,825,000

Fixed Costs                    $728,000

Net Profit                    $6,097,000

Explanation:

Contribution is the difference between sales revenue and variable costs.  It is a profit element obtained before fixed costs are deducted.