Response to the following problem:
The local authority of a small town maintains a theatre and arts centre for the use of a local repertory company, other visiting groups and exhibitions. Management decisions are taken by a committee that meets regularly to review the financial statements and to plan the use of the facilities. The theatre employs a full-time non-performing staff and a number of artistes at costs of £9,600 and £35,200 a month, respectively.
The theatre mounts a new production every month for 20 performances. Other monthly costs of the theatre are as follows:
£
Costumes 5,600
Scenery 3,300
Heat and light 10,300
A share of the administration costs of local authority 16,000
Casual staff 3320
Refreshments 2,360
On average the theatre is half full for the performances of the repertory company. The capacity and seat prices in the theatre are: 200 seats at £24 each 500 seats at £16 each 300 seats at £12 each In addition, the theatre sells refreshments during the performances for £7,760 a month. Programme sales cover their costs, but advertising in the programme generates £6,720 a month. The management committee has been approached by a popular touring group which would like to take over the theatre for one month (25 performances). The group is prepared to pay half of its ticket income for the booking. It expects to fill the theatre for 10 nights and achieve twothirds capacity on the remaining 15 nights. The prices charged are £2 less than normally applies in the theatre. The local authority will pay for heat and light costs and will still honour the contracts of all artistes and pay the non-performing employees who will sell refreshments, programmes and so on. The committee does not expect any change in the level of refreshments or programme sales if they agree to this booking.
Note: The committee includes the share of the local authority administration costs when making profit calculations. It assumes occupancy applies equally across all seat prices.
Required:
(a) On financial grounds should the management committee agree to the approach from the touring group? Support your answer with appropriate workings.
(b) What other factors may have a bearing on the decision by the committee?