CVP, Not for profit
Genesee Music Society is a not-for-profit organization that brings guest artists to the community's greater metropolitan area. The music society just bought a small concert hall in the center of town to house its performances. The lease payments on the concert hall are expected to be $4,000 per month. The organization pays its guest performers $1,800 per concert and anticipates corresponding ticket sales to be $4,500 per concert. The music society also incurs costs of approximately $1,000 per concert for marketing and advertising. The organization pays its artistic director $33,000 per year and expects to receive $30,000 in donations in addition to its ticket sales.
Required:
1. If the Genesee Music Society just breaks even, how many concerts does it hold?
2. In addition to the organization's artistic director, the music society would like to hire a marketing director for $25,500 per year. What is the breakeven point? The music society anticipates that the addition of a marketing director would allow the organization to increase the number of concerts to 41 per year. What is the music society's operating income/(loss) if it hires the new marketing director?
3. The music society expects to receive a grant that would provide the organization with an additional $17,000 toward the payment of the marketing director's salary. What is the breakeven point if the music society hires the marketing director and receives the grant?
1. Ticket sales per concert $ 4,500
Variable costs per concert:
Guest performers $ 1,800
Marketing and advertising 1,000
Total variable costs per concert 2,800
Contribution margin per concert $ 1,700
Fixed costs
Salaries $33,000
Lease payments ($4,000 × 12) 48,000
Total fixed costs $81,000
Less donations 30,000
Net fixed costs $51,000
Breakeven point in units = = = 30 concerts
Check
Donations $ 30,000
Revenue ($4,500 × 30) 135,000
Total revenue 165,000
Less variable costs
Guest performers ($1,800 × 30) $54,000
Marketing and advertising ($1,000 × 30) 30,000
Total variable costs 84,000
Less fixed costs
Salaries $33,000
Mortgage payments 48,000
Total fixed costs 81,000
Operating income $ 0
2. Ticket sales per concert $ 4,500
Variable costs per concert:
Guest performers $1,800
Marketing and advertising 1,000
Total variable costs per concert 2,800
Contribution margin per concert $ 1,700
Fixed costs
Salaries ($33,000 + $25,500) $58,500
Lease payments ($4,000 × 12) 48,000
Total fixed costs $106,500
Less donations 30,000
Net fixed costs $ 76,500
Breakeven point in units = = = 45 concerts
Check
Donations $ 30,000
Revenue ($4,500 × 45) 202,500
Total revenue 232,500
Less variable costs
Guest performers ($1,800 × 45) $81,000
Marketing and advertising ($1,000 × 45) 45,000
Total variable costs 126,000
Less fixed costs
Salaries $58,500
Lease payments 48,000
Total fixed costs 106,500
Operating income $ 0
Operating Income if 41 concerts are held
Donations $ 30,000
Revenue ($4,500 × 41) 184,500
Total revenue 214,500
Less variable costs
Guest performers ($1,800 × 41) $73,800
Marketing and advertising ($1,000 × 41) 41,000
Total variable costs 114,800
Less fixed costs
Salaries $58,500
Lease payments 48,000
Total fixed costs 106,500
Operating income (loss) $ (6,800)
The Music Society would not be able to afford the new marketing director if the number of concerts were to increase to only 41 events. The addition of the new marketing director would require the Music Society to hold at least 45 concerts in order to breakeven. If only 41 concerts were held, the organization would lose $6,800 annually. The Music Society could look for other contributions to support the new marketing director's salary or perhaps increase the number of attendees per concert if the number of concerts could not be increased beyond 41.
3. Ticket sales per concert $ 4,500
Variable costs per concert:
Guest performers $ 1,800
Marketing and advertising 1,000
Total variable costs per concert 2,800
Contribution margin per concert $ 1,700
Fixed costs
Salaries ($33,000 + $25,500) $58,500
Lease payments ($4,000 × 12) 48,000
Total fixed costs $106,500
Deduct donations 47,000
Net fixed costs $ 59,500
Breakeven point in units = = = 35 concerts
Check
Donations $ 47,000
Revenue ($4,500 × 35) 157,500
Total revenue 204,500
Less variable costs
Guest performers ($1,800 × 35) $63,000
Marketing and advertising ($1,000 × 35) 35,000
Total variable costs 98,000
Less fixed costs
Salaries $58,500
Mortgage payments 48,000
Total fixed costs 106,500
Operating income $ 0