Question

Problem 2-24A Selecting the appropriate time period for cost averaging Lakeshore Cinemas is considering a contract to rent a movie for $1,980 per day. The contract requires a minimum one-week rental period. mated attendance is as follows: Monday Tuesday Wednesday Thursday Friday Saturday Sunday 50 300 200 550 ,000 1,000 500 CHECK FIGURES a. Monday: $4.40 b. Friday: $4.98 Required a. Determine the average cost per person of the movie rental contract separately for each day b. Suppose that Lakeshore chooses to price movie tickets at cost as computed in Requirement a plus $3. What price would it charge per ticket on each day of the week? e. Use weekly averaging to determine a reasonable price to charge for movie tickets. Round your figures to two decimal points. d. Comment on why weekly averaging may be more useful to business managers than daily averaging

Answer 1

a.

Day	M	Tu	W	Th	F	Sat	Sun
Total cost (a)	$       1,980	$       1,980	$       1,980	$       1,980	$       1,980	$       1,980	$       1,980
No. of people (b)	450	300	200	550	1000	1000	500
Per unit (a/b)	$         4.40	$         6.60	$         9.90	$         3.60	$         1.98	$         1.98	$         3.96

b.

Day	M	Tu	W	Th	F	Sat	Sun
Cost per unit	$         4.40	$         6.60	$         9.90	$         3.60	$         1.98	$         1.98	$         3.96
Mark-up	$         3.00	$         3.00	$         3.00	$         3.00	$         3.00	$         3.00	$         3.00
Ticket price	$         7.40	$         9.60	$       12.90	$         6.60	$         4.98	$         4.98	$         6.96

c. Weekly average cost per unit = Total weekly cost/Total weekly no. of people = $13860/4000 = $3.465 = $3.47

Price = $3.47 + $3.00 = $6.47

d. Since the number of people attending the cinema is varying each day of the week, the pricing differently may be a problem, However, using weekly averaging may be more useful since it provides a single price considering the costs and attendance of the entire week.