2.Hanks and Zemeckis have a contract with Paramount for 8% of the film's gross box office receipts.Other individuals associated with the film signed contracts based on a percentage of 'net profits' rather than gross box office receipts, net profits being the film's profit after the recouping of all the studio's expenses. For example, Winston Groom, who wrote the novel on which the movie was based, received $350,000 plus 3% of the film's net profits. Eric Roth, the screenwriter, signed a similar contract with a fixed fee plus 5% of the film's net profits. Based on your calculations above, how much did Groom and Roth receive from their share of the film's net profits?

Actual cost of production = 112 + 67 (advertising) + 6.7 (advertising overhead) + 6 (interest) + (32% x 191) (distribution costs)

Actual cost of production = 191.7 + 61.12 = $ 252.82 million

gross receipts = 191 million

Therefore, Net LOSS = 252.82 -191 = 71.82

Hence, they both did not receive any payment ($0)

3.How much in gross box office receipts will the studio have to receive from theaters before Groom and Roth receive any money under their "net profit" contract?

To answer this question, you will need to conduct CVP analysis (including preparation of a contribution format income statement, see below). Assume that all costs not specifically identified as variable are fixed.

Based on the analysis, Groom and Roth will not receive any money until the break-even point (BEP) has been reached.

Using the data in this case, the BEP is $453.4 million.

Calculation of BEP:

Fixed Cost

Production cost 76.8 (66.8 + 15%)

Promo/Advertising Cost 73.9 (67.2 + 6.7)

Variable Cost

Participation cost 18.4% (16% of gross studio + 15%)

Distribution Fee 32% of gross studio

50.4% not needed financing costs there would not be any loss break even point

BEP = (76.8 + 73.9) x 1.504

= 226.7 Gross studio

Assume the role of Pierce O'Donnell, lawyer. Mr. Groom has hired you to represent him. Based on what you learned from the case analysis (i.e., questions 1-3 above), what would your opinion be regarding the merits of Mr Groom's case against Paramountthat is, how will you, as lawyer for Mr. Groom, suggest to begin negotiations against Paramount? Be sure to explain/justify your opinion.

(Be sure to consider your estimate of the gross box office receipts required for Groom to receive any money under his net profit participation contract (i.e., your answer to question 3 above)).