12:14 a s3.lite.msu.edu The Pritzker Music Pavilion in downtown Chicago is a tec

Question

12:14 a s3.lite.msu.edu The Pritzker Music Pavilion in downtown Chicago is a technologically sophisticated and uniquely designed performing arts venue that hosts live concerts attended by over half a million patrons a year. A group of local organizers, led by a prominent local businesswoman, would like to use the pavilion for a concert to benefit Ceres, a non-profit, national network of investors and environmental organizations working with companies and investors to address sustainability challenges such as global climate change. If the pavilion management agrees to host the concert, the organizers will donate all profits to Ceres (or absorb any losses). Based on the following revenue and cost information, the organizers would like answers to several questions. There are three sources of revenue for the concert: 1. Tickets will be sold for $15.00 each. 2. A large multinational corporation headquartered in Chicago will donate $3.00 per ticket sold. 3. Each concert attendee is expected to spend an average of $18.00 for parking, food, and merchandise. On the expense side, there are also three components: 1. A popular national group has agreed to perform at the concert. Normally, the group demands a significant fixed fee to perform, but to reduce the risk for the organizers, the group has agreed to perform for $6.50 per ticket sold. 2. The organizers will pay several companies to operate the parking, food, and merchandise concessions. They will pay $23,000 plus 14% of all parking, food, and merchandise revenue. 3. The organizers will pay the pavilion $80,000 plus $6.00 per person attending to cover its operating expenses (production, maintenance, advertising, etc.)

Explanation / Answer

1. CM per ticket = Revenue per ticket – Variable costs per ticket

Revenue per ticket = 15+3+18 = $36. Variable costs per ticket = 6.50+(14% of 18)+6 = $15.02

Thus CM per ticket = 36-15.02 = $20.98

2. Estimated total fixed costs = 23000+80000 = $103,000

3. No. of tickets sold = 10,500. Thus total revenue = 10,500 tickets*$36 per ticket = $378,000

Total variable costs = 10,500 tickets*$15.02 per ticket = $157,710

Total fixed costs = 103,000. Thus estimated profit = 378,000-157,710-103,000 = $117,290

4. Desired profit = $100,000. Let the no. of tickets sold be x. Thus 20.98x – 103,000 = 100,000

Or x = 203,000/20.98 = 9,675.88 tickets or 9,676 tickets (rounded off)

5. Desired after tax profit = $100,000. Let the no. of tickets sold be x. Thus (20.98x – 103,000)*(1-0.4) = 100,000

Or 20.98x – 103,000 = 166,666.67

Or x = 269,666.67/20.98 = 12,853.51 tickets or 12,854 tickets (rounded off)

6. Total revenue = 10,500 tickets*$36 per ticket = $378,000. Total variable costs = 10,500 tickets*$15.02 per ticket = $157,710

Fixed expenses of parking, food and merchandising = 23,000. Let fixed expense of operating the pavilion be y. Thus 378,000-157,710-23,000-y = 100,000

Or y = $97,290

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