Question: Gross margin and contribution margin. The Museum of America is preparing for its annual appreciation dinner for contributing members. Last year, 525 members attended the dinner. Tickets for the dinner were $24 per attendee. The profit report for last year's dinner follows.
Ticket sales $12,600
Cost of dinner 15,300
Gross margin (2,700)
Invitations and paperwork 2,500
Profit (loss) $ (5,200)
This year the dinner committee does not want to lose money on the dinner. To help achieve its goal, the committee analyzed last year's costs. Of the $15,300 cost of the dinner, $9,000 were fixed costs and $6,300 were variable costs. Of the $2,500 cost of invitations and paperwork, $1,975 were fixed and $525 were variable.
1. Prepare last year's profit report using the contribution margin format.
2. The committee is considering expanding this year's dinner invitation list to include volunteer members (in addition to contributing members).
If the committee expands the dinner invitation list, it expects attendance to double. Calculate the effect this will have on the profitability of the dinner assuming fixed costs will be the same as last year.