Question

ThirdEye Pictures Company operates in the leisure and entertainment industry and one of its activities is to promote concerts at locations throughout the Asian countries. The company is examining the viability of a concert in Kuala Lumpur. Estimated fixed costs are as follow: fees paid to performers (RM35,000), the rental of venue (RM15,000) and promotion costs (RM10,000). Variable costs consist of the cost of a pre-packed buffet that will be provided by a firm of caterers at a price which is currently being negotiated, but it is likely to be in the region of RM10 per ticket sold. The proposed price for the sale of a ticket is RM20.

1)What selling price would have to be charged to give a profit of RM 30,000 on sales of 8,000 tickets, fixed costs of RM60,000 and variable costs of RM10 per ticket? 

2) How many additional tickets must be sold to cover the extra cost of television advertising of RM 8,000?

Answer 1

Please find all the solution in the following image:

Based on the data given in the question, we get the following information: Fixed costs: Fees paid for performers 35,000.00 Rental of the venue 15,000.00 Promotion costs 10,000.00 Total fixed costs 60,000.00 Contribution per ticket ie, Selling price per ticket - variable cost per ticket Selling price per ticket 20.00 Less: Variable cost per ticket (10.00) Contribution per ticket 10.00 1. The break even number of ticket sales is that point where the total revenue equals total costs. Thus the contribution equals fixed costs. The formula is, Break Even number of tickets to be sold = Total fixed costs/Contribution per ticket le, = 60,000/10 = 6,000 tickets 2. We've to compute the number of tickets to be sold to achieve RM 50,000 profit. The formula is = Target Contribution/Contribution per unit Target Contribution = Target Profit + Total Fixed costs le, 50,000+60,000 =110,000 Thus tickets to be sold = 110,000/10 le, = 11,000 tickets 3. The simplest formula to arrive at the Net Income would be Contribution less Total fixed costs. Thus for selling 10,000 units, the income is Contribution(10,000 units * RM 10) 100,000.00 Less: Fixed Costs (60,000.00) Thus, Net Income 40,000.00 4. Tickets Sold are 8,000. Selling Price per ticket = Total Sales/Total tickets sold le, Now we know that Total Sales = Total Fixed costs + Total Variable costs+ Target Profit. Thus Total Sales for 8,000 tickets is, Total Fixed Cost 60,000.00 Total Variable costs (10*8,000) 80,000.00 Target Profit 30,000.00 Total Sales 170,000.00 Thus Selling price per ticket = 170,000/8,000 = RM 21.25 5. Additional advertising of RM 10,000 is incurred which of course is fixed costs. Thus order to cover his extra cost we to use the following formula to compute the additional tickets to be sold, le Additional fixed costs/Contribution per ticket = 10,000/10 = 1,000 tickets