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.