Break even Analysis

The University Bookstore is trying to decide what price to charge for your Marketing Applications textbook next fall. The CSUSB marketing department has told them that they expect to have 60 marketing majors taking Marketing Applications next fall, and as we know, all marketing majors purchase their required textbooks. The University Bookstore expects that 40% of the students who purchase their textbooks will purchase them from the University Bookstore.

The University Bookstore purchases the textbooks from the publisher for $75.00 per book. Shipping costs are $6.00 per case of 12 books. They have allocated their overhead costs on a per course/per semester basis, and the Marketing Applications course needs to cover overhead costs of $300.00 next fall semester. Please show your work!

1. How many Marketing Applications textbooks does the University Bookstore expect to sell next fall?

2. What is the bookstore’s variable cost per book?

3. What price does the bookstore need to charge to break even on this course? Break-even point (BEP) = [Fixed cost ÷ (Unit price − Unit variable cost)]

Playhouse Square in Cleveland regularly hosts touring companies of Broadway shows. Playhouse Square negotiates a contract with the producers of the Broadway show in which the show runs for a predetermined number of performances, Playhouse Square takes in revenue from the tickets that they sell for the performances, and they pay the producers of the show a set fee. Playhouse Square is currently negotiating to host “The Lion King.” While they are negotiating the contract, they need to estimate their future sales and profitability to determine how many performances they need to book the show for.

Playhouse Square plans to book “The Lion King” for a month, which will cost them a flat fee of $300,000. The theater in which the show was booked holds 1,000 seats. They expect to sell tickets to the show at their usual Broadway price of $50.00 per ticket.

To support the run of “The Lion King,” Playhouse Square will need to provide 30 employees. Playhouse Square pays their employees $15.00 per hour, and they expect the stagehands to work 6 hours per performance. They will also need to print 3000 programs for each performance at a cost of $200 per performance, and to order food for the concessions stand at a cost of $1800 per performance. The cost of marketing the show is budgeted to be $200,000. Finally, Playhouse Square also needs to cover their overhead costs of $200,000 per month and salary costs of $150,000 per month. Please show your work!

4. What are Playhouse Square’s total fixed costs per month?

5. For performances of “The Lion King,” what will Playhouse Square’s variable cost per performance be?

6. If Playhouse Square sells out every performance, how many performances will they need to hold to break even?

7. If Playhouse Square sells out every performance, how many performances will they need to hold to earn a profit of $150,000 on the show? Break-even point (BEP) = [Fixed cost ÷ (Unit price − Unit variable cost)]