As manager of the St. Cloud Theatre? Company, you have decided that concession s
ID: 419857 • Letter: A
Question
As manager of the St. Cloud Theatre? Company, you have decided that concession sales will support themselves. The following table provides the information you have been able to put together thus? far:
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Item
Selling Price
Variable Cost
? % of Revenue
Soft Drink
$1.25
$0.60
26
Wine
$2.00
$1.00
25
Coffee
$1.00
$0.30
31
Candy
$0.75
$0.25
18
Last? year's manager, Jim? Freeland, has advised you to be sure to add? 10% of variable cost as a waste allowance for all categories. You estimate labor cost to be $ 280.00$280.00 (5 booths with 3 people? each). Even if nothing is? sold, your labor cost will be $ 280.00$280.00?, so you decide to consider this a fixed cost. Booth? rental, which is a contractual cost at $ 60.00$60.00 for each booth per? night, is also a fixed cost.
?
a) Based on the information? available, the per night? break-even point in dollars for the St. Cloud Theatre Company? =
?(round your response to two decimal? places).
?b) How much wine would you expect to sell at the? break-even point?
Item
Selling Price
Variable Cost
? % of Revenue
Soft Drink
$1.25
$0.60
26
Wine
$2.00
$1.00
25
Coffee
$1.00
$0.30
31
Candy
$0.75
$0.25
18
Explanation / Answer
Contribution per unit =
Soft drink = 1.25-0.66 = 0.59
Wine = 2-1.1 =0.9
Coffee =1-0.33 =0.67
Candy =0.75 -0.275 =0.475
If X1, X2,X3 and X4 is the quantity sold of the soft drink, wine, coffee and candy respectively, then
0.59X1+0.9X2+0.67X3+0.475X4 -340 = Revenue
At breakeven point, the cost = proceedings from sales
i.e. proceedings = fixed cost
which in dollar terms is 340.
(b) Sale of wine = 0.9X2 = 25% of 340 = 85
X2 = 85/0.9 =94.44 = 95 Hence the 95 units of wine must be sold to just overcome the cost ( break even)
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