1. Break even sales; sales to earn a target operating income; contribution margin income statement
British Productions performs London shows. The average show sells 1,200 tickets at $50 per ticket. There are 120 shows a year. The average show has a cast of 70, each earning an average of $300 per show. The cast is paid after each show. The other variable cost is a program-printing cost of $7 per guest. Annual fixed costs total $459,000.
Requirements
1. Compute revenue and variable costs for each show.
2. Use the income statement equation approach to compute the number of shows British 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 $3,825,000. Is this profit goal realistic? Give your reasoning.
4. Prepare British Productions' contribution margin income statement for 120 shows for 2011. Report only two categories of costs: variable and fixed.
2. Analyzing CVP relationships
Allen Company sells flags with team logos. Allen has fixed costs of $588,000 per year plus variable casts of $5.50 per flag. Each flag sells for $12.50.
Requirements
1. Use the income statement equation approach to compute the number of flags Allen must sell each year to break even.
2. Use the contribution margin ratio CVP formula to compute the dollar sales Allen needs to earn $32,200 in operating income for 2011.
3. Prepare Allen's contribution margin income statement for the year ended December 31, 2011, for sales of 73,000 flags. Cost of goods sold is 60% of variable costs. Operating costs make up the rest of variable costs and all of fixed costs.
4. The company is considering an expansion that will increase fixed costs by 20% and variable costs by $0.60 cents per flag. Compute the new breakeven point in units and in dollars. Should Allen Company undertake the expansion? Give your reasoning.