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What would be the new level of operating profit

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Reference no: EM133127861

Question - Georgian Downs Race Track is a horse racing track. Its revenue is derived mainly from attendance and a fixed percentage of the betting. The horse racing season is 90 days running from June 1st to August 31st. Its expenses for a 90-day season are:

Wages of cashiers and ticket takers $160,000

Commissioner's salary $20,000

Maintenance (repairs, etc.) $20,000

Utilities $30,000

Other expenses * $90,000

Purses: Total prizes paid to winning racers $810,000

*depreciation, insurance, advertising, etc.

The track made a contract with Prestige Parking Limited (PPL) to park cars. PPL charged Georgian Downs Race Track $6 per car. A survey revealed that on the average, three people arrived in each car and half the attendees arrived by their own automobile. All others arrived by taxi or public buses.

The track's sources of revenue are:

Rights for concession and vending: $50,000

Admission charge (deliberately low) $1 per person

Percentage of the amount of bets placed 10%

Required - Assuming that each person bets $27 a night:

1. How many persons have to be admitted for the track to break-even for the season?

2. What is the total contribution margin at the break-even point?

3. If the desired operating profit (target profit) for the year is $270,000, how many people would have to attend?

4. If a policy of free admission brought a 20 percent increase in attendance, what would be the new level of operating profit? Assume that the previous level of attendance was 600,000 people for the season.

5. If the purses were doubled in an attempt to attract better horses and thus increase attendance, what would be the new break-even point (persons)? Refer to original data and assume that each person bets $27 a night.

Reference no: EM133127861

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