if in their original contracts, actor Tom Hanks and director RobertZemeckiswere to receive $7 million and $5 million, respectively, for their work on ForrestGump. However, after the studio asked the producers for budget cuts, both Hanks andZemeckisagreed toforegotheir standard fee for a percentage of the film's gross box office receipts. Sources estimate that the new agreement guaranteed each of the two 8% of the studio's share of gross box office receipts from the film. Using the information available about the costs of making the film, did ForrestGumphave a positive contribution margin? Assume that all costs not specifically identified as variable are fixed.

This case is designed to be used in an introductory managerial accounting class to illustrate cost behavior and break even analysis in a non manufacturing setting. Revenue and expense information related to Paramount Pictures hit movie Forrest grump is provided and students are required to prepare traditional income statement, identify fixed and variable costs, prepare a contribution format income statement, and consider the effects of changing from a variable cost structure to a fixed cost structure. While not the primary focus of the case come on the bacterial does allow for a discussion comparing internal reporting to external financial reporting and the applicability of GAAP in each setting. The short length of the case allows you to be distributed, red and sold within a single 90 minute class. Suggestions for cooperative learning assignments are also presented. 

Forrest Gump was one of the biggest movie hits of 1994. The movie's fortunes continued to climb in 1995, as it took home Oscars in six of the 13 categories in which it was nominated, including best picture, best director and best actor. One analyst has estimated that the film could generate cash flow as much as $350 million for Viacom Inc, Paramount pictures parent company. Such success has ensured the film a place among the top grossing films of all times period this is quite an accomplishment for a movie that took nine years to make into the big screen and whose script was not considered material likely to guarantee a runaway hit movie. 

But was Forrest Gump a moneymaker for paramount in 1994? Films are typically distributed to theaters under an agreement that splits the gross box office receipts approximately 50/50 between the theater and the movie studio under session agreement, Byron had received $191 million in gross box office receipts from theaters as of December 31st 1994. Paramus reports that the film costs $112 million to produce, including approximately $15.3 million each paid to start tom hanks and director robert zemeckis come and production overhead of $14.6 million this production overhead is charged to the movie at a rate equal to 15% of other production costs.

 Not included in the 112 million production costs were the following other expenses associated with the field. Promotion expenses incurred to advertise, premier, screen, transport, and store their film total 67 million at the end of 1994. An additional $6.7 million advertising overhead charge (equal to 10% of the $67 million promotion expenses) was charged too the film by paramount. Discharge just represent the films allocation of the stooges cause of maintaining the in-house advertising department. Paramount also charged the film distribution fee of 32% of his share of gross box office receipts. This fee is the films allocation of the cost incurred by paramount to maintain its studio wide distribution services. Finally 6 million interest on the $112 million in production costs were charged to the film by paramount.