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CVP analysis revision question 2 (NBAA, B5, NOV 2018)

The MAISHA is a medium sized theatre, with a maximum capacity of 500 seats, offering a variety of music events to its patrons.  In the past, the event offered were of low budget, featuring local and regional singers and musicians.   This year, the theatre engaged the services to music director who negotiated and booked two well known artists for event in May.  The MAISHA receives some funding to promote its activities from the Department of Culture and this fund is sufficient to pay basic operating expenses such as insurance, light and heat, and staff costs.  When a concert or event is staged, additional costs arise and the Board of Management of the theater must ensure that all such costs are covered by ticket sales.  While the artists that have been booked for May are nationally known, they charge higher fees to perform and the Board of Management are particularly concerned to ensure that the ticket price charged for the event is sufficient.

The following details have been provided by the Board of Management:

Ticket prices

Tickets for events are usually priced at TZS.15,000 each, but the Board has stated that a higher price of TZS.25,000 would be more suitable for the well known artists if costs are to be covered. The MAISHA employs a ticket booking facility that customers may use online or by telephone.  The company providing the service charges the theater 10% of the ticket price for each ticket sold.




Additional staff

For every event that is held the theater employs ten part-time staff members.  One staff member is  required for  box  office  used  for  ticket  collection,  four staff  members are required to usher customers to their appointed seats, and after the event has finished five workers are required to clean and arrange the theatre in preparation for the next event. Each staff member is paid TZS.80,000 for working at the event.

Well known artists

One  group,  the  Mondi,  agreed  to  perform  one  concert  for  a  fixed  fee  of TZS.8,155,000.

Another singer/songwriter, Kiba also agreed to perform one concert.  He negotiated an arrangement with the music director whereby he would be paid TZS.5,780,000 plus 20% of the ticket price for every ticket sold.

REQUIRED:

(a)   For each of the events featuring well known artists:

(i)    Calculate the number of tickets that must be sold to breakeven

(ii)   Assume that the maximum number of tickets are sold. What ticket price should be charged if the Board of Management would like to earn a profit of TZS.5,000,000 on the event?  

(b) Assume that a ticket price is TZS.25,000,   determine the level of ticket sales at which the profit earned from the Mondi will be equal the profit earned from Kiba.

(c)       Identify any six  main assumptions on  which  the  Cost-Volume-Profit model is based.




1 thought on “CVP analysis revision question 2 (NBAA, B5, NOV 2018)”

  1. Pingback: Limitation of cost volume profit (CVP) analysis – ACCOUNTING CLASS

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