Cost–Volume–Profit Analysis

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Module 2 – Case

Cost–Volume–Profit Analysis

Assignment Overview

The Annie Smith Dance Center

The Director of Annie Smith Dance Center is asking for assistance
with the financial aspects of running a professional group of
performers. She wants financial information presented in an easy to read
format and a better understanding of the profitability of the concerts
and the organization as a whole.

The Annie Smith professional group features three styles of dance
concerts each year. Two of the dance concerts showcase a different
genre. The third performance is a Christmas Spectacular, which is the
most popular and is therefore scheduled every year. The table below
provides information about expected ticket sales for the performances.

Lower Orchestra Section (A) Upper Orchestra Section (B)
Descriptions No. of Seats. Ticket Price Tickets sold per performance No. of seats Ticket Price Tickets sold per performance
Hip-Hop Performance 150 $85 100% 450 $50 90%
Jazz and Tap Dance 150 $85 100% 450 $50 60%
Christmas Spectacular 150 $125 100% 450 $50 100%

Ms. Smith has prepared a tentative schedule for the coming season.
The table below also shows the type and number of performances and
direct cost per type of concert.

Descriptions Number of Performances Cost per Dance Concert
(direct fixed costs)*
Hip-Hop Concert 10 $48,000
Jazz and Tap Dance 5 86,000
Christmas Spectacular 20 22,000
Total Direct Fixed Costs $156,000

*Examples of direct fixed costs are costumes, rehearsals, royalties,
guest artist fees, choreography, and salaries of production staff,
music, and wardrobe for each of the concerts. This amount does not
change with the number of performances.

Additional costs:

Variable costs associated with each performance are shown below.

Musicians $6,100
Rental of auditorium 2,500
Dancers’ compensation 6,700

Annual general administrative and operating costs for the dance center are:

Administrative staff $185,000
Insurance 25,000
Marketing 115,000
General office expenses 90,000

Case Assignment

Required:

Computations (use Excel)

  • Summarize key financial information in a table as shown below.
Title
Name of Dance Concert Revenues/
Performance
Variable Costs/
Performance
Contribution Margin/
Performance
Number of Performances Total Contribution/
Type of Dance Concert
Direct Fixed Costs Segment Margin/
Type of Concert
1.
2.
3.
Total
  • Use the information in the table you completed to compute the number
    of performances required to break even for each concert. Do not include
    general and administrative expenses. These are separate computations
    for each dance concert.
  • Compute break even for the organization as a whole (include all
    fixed expenses) and express the result in revenues instead of the number
    of performances.
  • Ms. Smith wants the Dance Center to generate at least $200,000 in
    operating profit. What level of revenues does the performance group need
    to achieve to meet this goal? Prepare an income statement in good
    format to support the computations.
  • Give a recommendation about changes Ms. Smith can implement to achieve the target profit. Support your idea with computations.

Memo (use Word)

Write a 4- or 5-paragraph memo to the owner of the dance center to
assist her in interpreting the financial analysis. Start with an
introduction and end with a recommendation. Each of the four or five
paragraphs should have a heading.

Short Essay (use Word)

Start with an introduction and end with a summary or conclusion. Use headings.

  • What are some shortcomings of multi-product even analysis?
  • How does demand and resource constraints affect this type of analysis.

Assignment Expectations

Each submission should include two files: (1) An Excel file and (2) a
Word document. The Word document shows the memo first and short essay
last. Assume a knowledgeable business audience and use required format
and length. Individuals in business are busy and want information
presented in an organized and concise manner.

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