Problem 1
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.
Problem 2
The contribution margin income statement of Delectable Donuts for August 2012 follows:
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DELECTABLE DONUTS
Contribution Margin Income Statement
For the Month of August 2012
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Sales revenue
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$150,000
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Variable costs:
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Cost of goods sold
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$41,000
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Marketing costs
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15,000
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General and administrative costs
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4,000
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60,000
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Contribution margin
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$90,000
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Fixed costs:
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Marketing costs
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37,800
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General and administrative costs
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12,600
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50,400
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Operating income
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$39,600
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Delectable sells four dozen plain donuts for every dozen custard-filled donuts. A dozen plain donuts sells for $4, with total variable cost of $1.60 per dozen. A dozen custard-filled donuts sells for $5, with total variable cost of $2 per dozen.
Requirements:
1. Calculate the weighted-average contribution margin.
2. Determine Delectable's monthly breakeven point in dozens of plain donuts and custard-filled donuts. Prove your answer by preparing a summary contribution.