Reference no: EM131806168

Question - Elton John is coming to town.

The following information pertains to A-State Pavilion's revenue and cost information related to one (Elton John) concert.

Ticket price $77

Per ticket ancillary revenue $13 (parking, merchandise, etc)

Variable costs per ticket:

Parking $5.19

Merchandise 3.35

Concession 8.77

Operating 12.74

Fixed Costs:

Parking $ 2,480

Concession 35,380

Production 15,500

Merchandise 14,200

Operation 15,000

Advertising 20,000

Talent Cost 250,000

Other information:

Stadium capacity 20,000 seats

Tax rate for A-State Pavilion is 30%

Required:

1. Determine the breakeven point

2. Calculate net income earned from the concert assuming that A-State Pavilion is able to sell 10,000 seats at $77 per ticket.

3. If they reduced the price per ticket to $55, they believe they can sell tickets to maximum capacity. Calculate the amount of profits the Pavilion will make if they dropped the price to $55. Do you think that they should drop the price of tickets? Assume no change in fixed or variable costs.

4. Talent cost varies depending on the artist. Assume that Elton John will not perform unless A-State pays him $600,000 for the Concert. If A-State profit objective is to make $300,000 after tax, how much should they charge per ticket?

5. Assume that the Pavilion could possibly contract with a local parking management company to outsource the function at a fixed cost of $80,000 per event. This means that the variable parking cost will be eliminated. They will continue to incur the fixed parking costs to maintain the parking meters etc. Per ticket ancillary revenue will also drop by $3. Assume they sell 10,000 tickets at $77, talent cost is $250,000, and all other costs remain the same. Is it worth outsourcing parking?