Refer to Question 2-45 regarding Bellevue Amateur Dramatics. The drama club is uncertain about some of its estimates and wants to conduct some sensitivity analysis or ‘what if’ scenario analysis:

Required:

For each of the change in estimates listed below, calculate a new contribution margin per ticket sale (if appropriate), breakeven point in ticket sales and estimate a revised annual profit/loss.

a The club is uncertain whether the director will continue next year unless he has a significant increase in his annual fee.

They are considering offering him $4700 per year.

b Alternatively the club could pay a different director the original planned amount, but if they do this they estimate that ticket sales will fall to 100 patrons/ticket sales per show. Which course of action is preferable economically – (a) or (b)?

c A third alternative is to pay a different director the original planned amount but offer guests two complimentary drinks each instead one just one. If this is done they estimated that ticket sales will be 120 patrons per show. Is this worthwhile trying compared to options (a) and (b)?

Question 2-45

Bellevue Amateur Dramatics club produces Shakespearian plays in a rural country setting. There are two productions every year and each production has five performances. The average performance sells 150 tickets. The cast are not paid; however, the director is paid $500 per year. Stage backdrops are made and painted locally by a TAFE art school which charges $400 for the two sets. Guests receive a programme and a ticket at a cost of $4 for printing per guest and also a complimentary drink at an average cost of $2 per guest. Members of the club act as staff for the performance and are paid $30 per show and each show needs three such students to help. The shows are popular and are always sold out in advance; tickets sell for $30 each.