Question

Tori Perrie is the manager of the IMAX Theater at the Audubon Aquarium here in town. The IMAX Theater has a 3-stories high screen and wrap-around 12,000-watt digital sound system. The IMAX Theater has been very popular and has increased attendance and interest in the Aquarium.

The average IMAX show attracts 125 patrons (50 children and 75 adults) at a ticket price of $7.95 per child and $9.95 per adult. Ms. Perrie estimates that variable costs are $250 per showing in the IMAX Theater. In addition, fixed costs of $600 are allocated to each show, an amount found by taking the annual estimate of the total fixed costs associated with the IMAX Theater and dividing it by the annual estimate of IMAX shows.

One of the local middle schools has approached Amanda about scheduling an extra show for its eighth graders. The school estimates that 100 students and five adults would attend the special screening of Hurricane on the Bayou, about Hurricane Katrina, which is currently showing. The school has asked Ms. Perrie for a price quote. The special screening would be scheduled for mid-morning, a time the Theater is not usually open.

A. Based on the data provided, what is the minimum amount that Ms. Perrie could charge the school so that the IMAX Theater does not incur a loss on the special screening?

B. What other financial factors, though not listed in here, could be relevant to Ms. Perrie’s price quote?

C. What nonfinancial factors that Ms. Perrie should consider?

D. So what price would you suggest to Ms. Perrie and why?

Answer 1

A. The minimum amount Ms.Perrie can charge is $250.

This is the variable cost of the show which will incur for the show. The fixed cost is not to be considered as this will incur whether there is a special or not and are recovering from other shows.

B. The special show is scheduled in the mid morning when there is no show, there may be additional payment of overtime which may also may be considered for fixing the price.

C. The convenience and consent of all parties involved in the special show should also be considered. This show is school chilren, so the social obligation can also be considered.

D. I suggest a Price of $500 for the show. This will provide a discount to the children and ensure a profit of $250 to Perrie for his efforts as is his business. The adults may be just accompanying the students may be teachers who may not be usually charged. So a price of $5 per student will do.