Joe Marquee, the owner of the local cinema in your town, approaches you with a proposition. You're given the franchise of selling tickets to movies at his "Paparazzi" cinema, the only cinema in town. The deal is that you pay him $1,000 every month as a franchise fee and $2 for every ticket you sell. Anything above that, you keep.
You think this is a good deal and you take it. Initially, you price the tickets at $5 per ticket. Think about the following questions:
1. What is your fixed cost?
2. What is your variable cost?
3. What is your contribution?
4. What is your break even point (tickets sold per month)?
5. You start the business. On the very first day, for the very first 2pm show of "The Managerial Accounting Games" (a movie on a topic that everyone finds exciting!) you find, at 1:55pm, that you still have 20 unsold tickets. Looking out, you see a few teenagers hanging around looking miserable. They obviously want to see the movie but don't have the necessary five dollars. It so happens that you're a mix of an unsentimental businessperson and a softie who likes to help people so you decide to sell them tickets provided you still make money out of the sale. What is the lowest price that you should charge these teenagers?
6. Additional bonus question. What is the relationship between sales price and breakeven point? Between Fixed costs and breakeven point? Between variable costs and breakeven point? (I.e., how do changes in each of these affect the breakeven point?)
Joe Marquee, the owner of the local cinema in your town, approaches you with a proposition. You're given the franchise of selling tickets to movies at his "Paparazzi" cinema, the only cinema in town. The deal is that you pay him $1,000 every month as a franchise fee and $2 for every ticket you sell. Anything above that, you keep.
You think this is a good deal and you take it. Initially, you price the tickets at $5 per ticket. Think about the following questions:
1. What is your fixed cost?
2. What is your variable cost?
3. What is your contribution?
4. What is your break even point (tickets sold per month)?
5. You start the business. On the very first day, for the very first 2pm show of "The Managerial Accounting Games" (a movie on a topic that everyone finds exciting!) you find, at 1:55pm, that you still have 20 unsold tickets. Looking out, you see a few teenagers hanging around looking miserable. They obviously want to see the movie but don't have the necessary five dollars. It so happens that you're a mix of an unsentimental businessperson and a softie who likes to help people so you decide to sell them tickets provided you still make money out of the sale. What is the lowest price that you should charge these teenagers?
6. Additional bonus question. What is the relationship between sales price and breakeven point? Between Fixed costs and breakeven point? Between variable costs and breakeven point? (I.e., how do changes in each of these affect the breakeven point?)
