Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Mihir Patel is in charge of a multiplex operated by General Cinema. In an attempt to boost profit, Mihir is considering a two-for-one promotion. Under

image text in transcribed
image text in transcribed
Mihir Patel is in charge of a multiplex operated by General Cinema. In an attempt to boost profit, Mihir is considering a two-for-one promotion. Under this scheme, any customer attending a matinee show can exchange their ticket stub for a free pass at the end of the matinee. The pass is valid for the next seven days on any matinee show in any of the screens in the multiplex. Mihir believes the scheme is a winner because just about every matinee has empty seats, and the cost of showing a movie (e.g., projection, utilities) will not change if a matinee attracts a few more patrons. Mihir estimates that running the promotion will increase overall weekly attendance at matinee shows from 2,000 to 2,500 persons. However, Mihir expects that running the promotion actually will decrease matinee ticket sales from 2,000 to 1,800 (in other words, Mihir expects 700 people to take advantage of the promotion and actually use their free pass). Mihir does not expect therpromotion to affect attendance and sales on non-matinee shows. The average matinee ticket sells for $3.95. Mihir believes that the lost matinee ticket revenue would be offset by increased sales at the concession stand. Moreover, Mihir figures that roughly half of his customers patronize the concession stand, with the average moviegoer spending a total of $6.00 on drinks, popcorn, and candy. Variable costs in the concession stand amount to 15% of concession revenue, and weekly fixed costs for the concession equal $2,000. Required: Calculate controllable costs and benefits and determine the value of the promotion. Should Mihir run the promotion? 52 GoGo Juice is a combination gas station and convenience store that is located at a busy intersection in a major metropolitan area. Recently, a national chain opened a similar store two blocks away and, as a result, GoGo Juice's profits have decreased. In an effort to boost profit, GoGo Juice is considering running a special promotion. Under the special promotion, customers would receive $0.01 in free merchandise for every $0.20 spent on gasoline. For example, a customer purchasing $12.60 in gasoline would receive ($12.60/$0.20).01=$0.63 in free merchandise (the customer could use the $0.63 toward the purchase of a soda, candy bar, etc.). Management of GoGo Juice believes that the special promotion will increase gasoline sales by 8% from their current levels. Additionally, management believes that overall merchandise sales will increase by 12% from their current levels. Most of the increase in merchandise sales will result from persons redeeming their free merchandise moneyindeed, management expects that everyone will use their free merchandise money. However, merchandise sales also are expected to increase because, in the process of using their free merchandise money, people will spend more. For example, a person receiving $0.63 in free merchandise may decide to purchase a $0.75 candy bar (thus, the individual will have to pay GoGo Juice \$0.12 for the candy bar). Without the free merchandise money, this same person might not have purchased the candy bar (i.e., they may only have purchased gasoline). The following table provides data regarding current monthly sales and variable costs for both gasoline and merchandise: GoGo Juice also incurs fixed costs of $60,000 per month. Required: a. Does GoGo Juice's decision deal with excess supply or excess demand? b. By how much is GoGo Juice's monthly profit expected to change if it runs the special promotion? c. Assume that GoGo Juice is considering altering the special promotion in the following way: Rather than give $0.01 in free merchandise for every $0.20 spent on gasoline, management would give customers $0.50 in free merchandise for every $10.00 spent on gasoline. Under this scheme, a customer spending $8.00 on gasoline would not receive any free merchandise whereas a customer spending $18.00 on gasoline would receive $0.50 in free merchandise. Discuss what you perceive to be the costs and benefits of altering the special promotion in this fashion

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing Concepts For A Changing Environment

Authors: Larry E. Rittenberg, Bradley J. Schwieger

5th Edition

0324223102, 978-0324223101

More Books

Students also viewed these Accounting questions