FUNNY BONES INC (FBI) is considering whether to change the types of tickets it sells for its comedy performances. FBI stages its performances at various venues which the company rents for the duration of a performance. All its performances are for the same duration.

The new ticket types that FBI is considering selling are as follows:

• GOLD reserve: Premium ticket comes with a premium drink and a premium snack
• SILVER reserve: Standard ticket comes with a standard drink and a standard snack

Expected price and cost data for the two types of tickets are as follows. These estimates are based on a typical performance that FBI stages, where it expects to sell 5,000 GOLD reserve tickets and 30,000 SILVER reserve tickets.

	Gold Reserve	Silver Reserve
Selling price	$100	$50
Cost of drink*	$2.00	$1.00
Cost of snack*	$1.50	$0.50
Selling cost (variable cost)**	$9.00	$3.00
Fixed cost of staging a performance = $309,000***

*The estimated cost of drinks and snacks here reflects FBIs successful negotiations with a supplier to obtain a significantly large volume discount for the drinks and snacks that are provided to ticket holders. The discount is calculated based on the number of drinks and snacks FBI purchases from the supplier. FBI pays the supplier for the exact number of drinks and snacks provided to ticket holders (i.e., any unopened drinks or snacks can be returned to the supplier). FBI does not sell additional drinks and snacks to ticket holders. If the ticket holders need a second drink or a second pack of snack, they can purchase it from other vendors at the venue.

**Selling cost is a variable cost paid to ticketing agencies who help FBI sell tickets to the public.

*** The fixed cost reflect items such cost of paying the comedian and stage crew, stage props, rental cost of the performance venue, security costs and other miscellaneous costs.

Using the information provided in the table above, and assuming FBI operates in a way that is consistent with all the relevant Cost-Volume-Profit assumptions, the number of Gold and Silver reserve tickets that it would need to sell in order to break-even has been calculated by the company to be 6,000 tickets in total.

A. The Chief Financial Officer for FBI argues that the break-even tickets calculated using the information provided above (i.e., 6,000 tickets) is not likely to be an accurate estimate of true break-even. Based on the information provided in the question, what are TWO possible reasons for this? Justify your answer using specific information from the question. Also, state the likely impact of each reason on the break-even point i.e., is the calculated break-even of 6,000 tickets too high or too low? Calculations are not required.

B. There is currently a high level of uncertainty with regards to consumers' willingness to spend on entertainment. Should FBI increase or decrease the operating leverage of each performance? Using information from the question, provide ONE specific suggestion how FBI would be able to do this. Explain.