Reference no: EM132832807

You sit on the board of directors for a nonprofit history museum. The museum charges a small admission fee to cover its operating expenses. The objective is to break even. A local benefactor recently pledged an annual donation of $25,000 to the museum.
In a recent strategy meeting, the president suggested the museum raise the price of admission, so that the company's "break-even point would be lower." The financial manager responded by agreeing they should raise the price and stated the company would be "less likely to incur a loss."

Problem 1: How will the donation affect the museum's break-even attendance level?

Problem 2: What would happen to the break-even point if the admission price and unit variable costs increased by the same dollar amount?

Problem 3: Do you agree with the president and/or the financial manager? Why?

Problem 4: Consider two museums with identical fixed expenses, unit variable costs, and profits. One company has a much lower admission price. Explain how this can happen.