Question: Cost Structure and Risk Sharing Marge Porter is the manager of Stanford's traditional Sunday Flicks, sponsored by the Stanford Student Association. The admission price is deliberately set at a very low $3. Each Sunday, a fi lm has two showings and a maximum of 500 tickets can be sold for each showing. The rental of the auditorium is $330 and labor is $435, including $90 for Porter. Porter must pay the fi lm distributor a guarantee, ranging from $300 to $900, or 50% of gross admission receipts, whichever is higher. Before and during the show, she sells refreshments; these sales average 12% of gross admission receipts and yield a contribution margin of 40%.
1. On June 3, Porter screened The Descendants . The film grossed $2,250. The guarantee to the distributor was $750, or 50% of gross admission receipts, whichever is higher. What operating income was produced for the Student Association?
2. Recompute the results if the film grossed $1,400.
3. The "four-wall" concept is increasingly being adopted by movie producers. In this plan, the movie's producer pays a guaranteed fixed rental to the theater owner for, say, a week's showing of a movie and the producer receives the ticket receipts less the fixed rental. As a theater owner, how would you evaluate a "four-wall" offer?