CVP, theatre planning. The Globe and Mail has just published a stinging criticism of the inflation in theatre ticket prices. The article was titled, “The $100 Price Gouge: Is $150 Next?” This article has increased the concerns of a group planning Toronto’ future productions.

It had been planning for a $100 price for all of its seats. The up-front fixed costs to open are $12 million. Production and operating costs are $55 0,000 per week. The theatre has capacity for 2,000 seats with six performances per week planned. Approximately 75 seats per night are held as complimentary house seats.

INSTRUCTIONS Form groups of two or more students to complete the following requirements.

REQUIRED Your group is charged with exploring ways of improving the profitability of the venture and of reducing its breakeven point. Areas you should explore (but are not restricted to) include the following:

a. Increase the number of shows per week. The cast is under contract for up to eight shows a week for a fixed amount that is included in the $55 0,000.

b. Provide the two star performers with a $40,000 weekly salary and a percentage of revenues or operating income instead of the fixed $70,000 per week each is budgeted to receive.

c. Change the single $100 pricing policy. Whereas all seats in the 2,000-person auditorium have unobstructed views, a recent theatre reviewer referred to the back rows of the balcony section as “binocular land” (e.g., 400 seats at $125; 525 seats at $100; and 1,075 seats at

$75—the policy is your choice).

d. The assumptions about attendance changes and so on (i.e., assume varying levels of attendance—80%, 90%, 100%).

LO1