Reference no: EM132829327
Question - David Young, a theater owner wants to secure the rights to exhibit the movie "Star Wars XIII". He has already decided to offer a 90%, 70%, and 50% sliding scale over the three week period (Theater owners pay a % of box office to the distributor). The weekly fixed "house expenses" for rent, climate control, personnel, and advertising, and other items are $5,000. Allowing for lower prices for children, senior citizens and matinees, the average price per ticket is $6.
Young expects to sell 8,000 tickets during first week, 6,000 tickets during the second, and 4,000 during the third.
For the purpose of this problem, ignore the concession operations which normally adds a significant amount to theater's profits.
Required -
a. What is the expected operating income for the three week run?
b. Find the breakeven volume as the volume where contribution margin equals the fixed cost.
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