Walnut Creek

Walnut Creek – Case

1. Complete two selected cost-volume-profit analyses for the show illustrated in Exhibit 2, the DMSB All-Stars:

a) How many tickets must the Walnut Creek Amphitheater sell to break even?

b) How many tickets must Walnut Creek sell to earn $50,000 in operating income?

1. What should be the average ticket price for the DMSB concert if the fixed-pay fee is $200,000 and Walnut Creek expects to sell 7,000 tickets and wants to earn $50,000?

2. Negotiating the fee for the DMSB All-Stars: fixed-pay or per capita contracts?

c) What is the maximum fixed fee that Walnut Creek can pay the DMSB All-Stars if W///alnut Creek wants to earn $75,000 and expects the show to have an average ticket price of $22.12? Assume the show is expected to draw 6,000 paying ticket holders.

d) What is the maximum fixed fee that Walnut Creek can pay the DMSB All-Stars if Walnut Creek wants to earn $75,000 and expects the show to have an average ticket price of $22.12? Assume, including 25 percent comp tickets, that the show is expected to be a sell-out.

e) Independent of (a) and (b), what is the maximum per capita fee that Walnut Creek can pay the DMSB All-Stars, whose concert is expected to be a sellout, if Walnut Creek wants to earn $300,000 from an average ticket price of $22.12 per ticket?

3. What role does CVP analysis and operating leverage play in contract negotiations with different types of performers (fixed-fee or per capita)?

Answers

1)

A)

TFC – 246,295

Selling Price – 22.12

Unit Variable cost – 4.87

TFC/SP-UVC

246,295/22.12-4.87 = 14,277 Break even

B)

246,295+50,000/22.12-4.87 = 17,176

2)

7000= (200,000+50,000)/ SP – 4.87

SP = 40.58

3)

A) 6000= (TFC + 7500)/ 22.12 – 4.87

TFC = 28,5000

B) (TFC+75000) / 22.12 – 4.87

258,750= TFC + 75000

TFC = 183,750

C)...