Question:

(A)

Gala Promotions Limited is planning a concert in Karachi. The following are the estimated costs of the proposed concert:

Rs. (000)

Rent of premises 1,300

Advertising 1,000

Printing of tickets 250

Ticket sellers, security 400

Wages of Gala Promotions Limited Personnel employed at the concert 600

Fee of artist 1,000

There are no variable costs of staging the concert. The company is considering a selling price for tickets at either Rs.4,000/- or Rs.5,000/- each.

Required:

1. Calculate the number of tickets that must be sold at each price in order to break even.
2. Recalculate the number of tickets that must be sold at each price in order to break-even, if the artist agrees to change from the fixed fee of Rs. 1 million to a fee equal to 25% of the gross sales proceeds.
3. Calculate the level of ticket sales for each price, at which the company would be indifferent as between the fixed and percentage fee alternative.
4. Comment on the factors, which you think, the company might consider in choosing between the fixed fee and percentage fee alternative.

(B)

The Sindh Engineering Company produces a bicycle which sells at Rs.1,000 per unit. At 80% capacity utilization which is the normal level of activity, the sales are Rs.180 million. Costs are as under:

Prime cost per unit Rs.400

Factory indirect cost Rs.30 million (including variable cost Rs.10million)

Selling costs Rs.25 million (including variable cost Rs.15million)

Distribution costs Rs.20 million (including variable cost Rs.11million)

Administration costs Rs.6 million

Commission and discounts are 5% of sales value.

Required:

1. Calculate the break-even sales value.
2. Prepare statements showing sales, costs, profit, and contribution margin at each of the following levels:
   1. at the normal level of activity;
   2. if the unit selling price is reduced by 5% thereby increasing sales and production volume by 10% of the normal activity level;
   3. if the unit selling price is reduced by 10% thereby increasing sales and production volume by 20% of the normal activity level.

Kindly solve this question in detail, fulfill the complete requirements as per instructions, and try to do it in Ms. Word.