Assignment #4

1. "Company" has agreed to pay its star player $3,000 per week against 10% of the weekly gross receipts from admissions. Its lease for the arena in which it plays provides that the landlord shall receive $1,000 per week plus 20% of the gross sales from admissions. A third party has a contract that entitles her to a royalty fee of a straight 10% of the gross receipts from admissions to the arena. All other expenses of "Company" aggregate $10,000 per week.

1. How much must "Company" gross in admissions sales to break even?
2. How much must "Company" gross in admissions sales to net a weekly profit of $5,000? Show all computations.
3. What will be "Company"'s weekly net income (profit) at a gross sales of $18,000 for a week? Show all computations.
4. If all the facts in the first paragraph held, except that the star player's contract was amended to read "$3,000 per week plus 10% of the gross", what would be the breakeven point (in dollars)?
5. What would be the breakeven point if the star player were to receive $3,000 weekly plus 10% of the gross receipts over $18,000 weekly? Show all computations.
6. Going back to the original facts set forth in the first paragraph, what will be the number of persons that must attend the arena in a week in order to net a weekly profit of $5,000, if all ticket prices were $10?
7. If all ticket prices were raised by an average of 10%, so that the average price of tickets were $11 per ticket, how many tickets would have to be sold to earn a weekly profit of $5,000?
8. Referring to the question (g) above, what would be the Breakeven Point in dollars, at the new price of $11 per ticket?

2. You receive an exclusive contract to sell orange drinks at a stand in the lobby of Symphony Hall. You can buy the drinks from a distributor for 50 cents each. You employ salespersons at a fixed compensation of 25% of gross sales. Your total other expenses (including rent) to The Symphony Hall -- accounting, legal, cleaning, repairs, straws, napkins, etc.-- comes to exactly $2,400 weekly.

1. If you plan to charge your customers $1.25 per drink from your concession stand, how many drinks must your salespeople sell each week for you to break even on this concession lease?
2. After three months under the concession contract, you find that you are selling sufficient drinks to earn a weekly operating net income (profit) of $1.800.00. However, you estimate that you could sell 70% as many drinks as you are now selling, if your prices were $2.50 per drink. Should you double your price? Show all computations to support your answer.
3. If you have been paying your salespeople 25% of the selling price of each drink sold (25% of 125 cents for each drink), or 31 1/4 cents per drink, and now you raise the price to $2.50 per drink, should you continue to pay them 31 1/4 cents per drink, or 25% of their total sales? Or something else? Discuss fully.

3. You are a program printer, who has printed 10,000 programs to be sold at the three performances of The Russian Circus at the Houston Hippodrome, under an exclusive contract, approved by both the Circus and the Hippodrome. The programs cost you 22 1/2 cents each to print. You have agreed, under your concession lease, to pay The Hippodrome promoter 10% of the gross sales price of programs sold. You have agreed to pay program salespeople 25% of their sales as commisions. On the first night's performance, when the Hippodrome was almost full, you sold only 1,100 programs at a price of $3.00 each.

QUERY: Should you cut the price to $2.00 each? 50 cents each? Discuss fully.

4. You expect to sign contracts and arrange other deals, so that your proposed production of "Two On a Seesaw" at The Lyceum Theatre opening the month of March of this year, will cost an estimated $50,000 per week plus 45% of the gross weekly box office admission sales.

1. What is the estimated breakeven point of this show?
2. What figure would you wish to have inserted in the "Stop Clause" of the license with the Lyceum Theatre for the run of the show? (The Stop Clause states the gross sales that must be acheived by the box office in a week, before either party has the right to give a one - week notice of termination of the theatre license).