Managerial Accounting Group Project - Written Report

Group Project II

Managerial Accounting

12/7/14

By:

Tim Callahan

Kelly Kuhn

John Mano

Christie Stevens

Alternative 1 (Discount Theatre):

(1)

Contribution margin in total dollars 320,000 330,000

Contribution margin per unit 4 3.3

(2)

Contribution margin ratio 0.3333 0.47142857 (3)

Break-even point in sales dollars 420,000 360,606

Break-even points in units 35,000 51,515

(4)

Degree of operating leverage 1.78 2.06

In this case, with the discount, our sales revenue is decreasing as our operating leverage is increasing. This is not a good thing. Management needs to know this because it means that its

earnings with the discount theatre will be more volatile.

(5)

Regular Discount

Sales 1,170,000 890,909

Variable costs 780,000 470,909

Contribution margin 390,000 420,000

Fixed costs 140,000 170,000

Income before taxes 250,000 250,000

Income taxes (32% rate) 80,000 80,000

Net income 170,000 170,000

Amount of tickets to be sold 97,500 127,273

(6)

Regular Discount

Sales 768,000 560,000



Fixed costs 140,000 170,000



Net income 78,880 63,920

(7)

Regular Discount

Sales 1,152,000 840,000



Fixed costs 140,000 170,000



Net income 165,920 153,680

(8)

Regular Discount

Sales (1000% of predicted) $9,600,000.00 $7,000,000.00

Variable costs 6,400,000.00 3,700,000.00

Contribution margin 3,200,000.00 3,300,000.00

Fixed costs 140,000.00 170,000.00

Income before taxes 3,060,000.00 3,130,000.00

Income taxes (32% rate) 979,200.00 1,001,600.00

Net income $2,080,800.00 $2,128,400.00

At a 900% increase in sales, the discount theatre yields greater net income than the regular

theatre. Therefore, if ticket sales greatly increase, the discount theatre experiences a greater increase in profit.

Regular Discount

Sales (50% of predicted) $480,000.00 $350,000.00 Variable costs 320,000.00 185,000.00

Contribution margin 160,000.00 165,000.00 Fixed costs 140,000.00 170,000.00

Income before taxes 20,000.00 (5,000.00) Income taxes (32% rate) 6,400.00 (1,600.00)

Net income $13,600.00 $(3,400.00)

If ticket sales decline by 50%, the regular theatre is still profitable, while the discount theatre has now become unprofitable. Therefore, if ticket sales decline, the discount theatre also experiences

a greater loss of income. Our Point:

Part #4 calculates the operating leverage for each business at the original level of sales: Regular - 320,000/180,000 = 1.78

Discount - 330,000/160,000 = 2.06 The discount theatre has higher operating leverage, meaning it has higher fixed costs and lower variable costs. Businesses with higher operating leverage will experience greater net income in

times of growth, but they are also exposed to greater losses if sales decline. Stated simply, a

business with higher operating leverage means it has higher fixed costs, which must be made up with having high volume of sales. The discount theatre has greater overall volatility.

(9)

9a. Thinking about movie ticket sales, is there any day of the week or time of day when

greater sales are expected? Which theatre type is more sensitive to this occurrence? Which

theatre type is less sensitive to this occurrence?

Movie theatres experience greater sales during the weekend, specifically Friday night through Sunday night. Movie theatres also experience greater sales at night, after 6pm, when most people are finished with school and work.

The regular theatre would be more sensitive to this occurrence because most people who go to the movies on weekend nights would be looking to see a newly-released movie. The

evidence for this is because weekend box office revenue reported on the news almost always features newly released movies in the top 5. As stated in the question, the discount theatre seeks to attract teenagers, senior citizens, and large families. Teenagers would watch movies outside of

school hours, meaning afternoon and evening. Senior citizens would probably watch movies in the afternoon, as most senior citizens wake up early and go to sleep early. Large families would

be more likely to watch movies in the afternoon or early evening, on weekends, when the entire family can get together. Therefore, the discount theatre still experiences a greater amount of ticket sales on weekends/evening, just to a lesser extent compared to the regular theatre.

9b. Which theatre type is more advantageous and why?

After completing the calculations in part 8, we believe the regular priced movie theatre is more advantageous. The regular priced theatre has lower operating leverage, meaning it will

experience less volatility in net income compared to the discount theatre. In addition, at the extreme rates of growth of 1000%, the discount theatre only experienced a 2% comparative

increase in net income compared to the regular theatre, whereas during the 50% decline in sales, the regular theatre was still slightly profitable, while the discount theatre began losing money. Yes, the discount theatre could technically achieve greater net income at high rates of growth;

however, such scenarios are unlikely to occur.

9c. Is there anything else the company can do to manage the decline in sales that come with

certain days and times?

The company can offer promotions to entire more viewers to come during off-hours. They can offer discounts in the afternoon, in the form of matinee prices, to attract more

customers before 5:30 P.M. Senior citizen discounts can be provided, knowing that most senior citizens attend the movies in the afternoon anyway. Alternatively, they can offer a flat weekday price for watch movies from Monday to Thursday to encourage more viewers to come during the

week. Lastly, the company could offer a movie theatre membership, with perhaps 2 primetime tickets, 2 weekday night tickets, and 2 weekday afternoon tickets per month at a discounted rate

in order to either encourage weekday movie viewership or bundle the bad tickets with the good tickets.

(10)

The $30,000.00 advertising budget available to announce the change from a regular to discounted theatre should be aimed at the targeted audience, families with children, lower

income, and older adults. Direct mail and internet advertising work well with this sector of the market. For as little as $1,500.00 100,000 residents in the Tri-Valley area of Southern Riverside County can be notified with a full page advertisement in a Clipper Magazine, with a 1% effect

guarantee, this has the potential to generate 10,000 or $70,000 in sales or your money back on the advertisement. Tracking the success of this advertising choice could be as simple as attaching

a redeemable paper coupon for an additional one time savings or a free Small Soda and Popcorn would allow management to determine its effectiveness, generate new customers, and mitigate the expense of the advertising if it does not meet the guaranteed threshold. Product Cost of soda

and kernels are minimal expense when compared to the consumer interest generated.

Recognized internet couponing is an option, but should be used as a last result after other methods have failed. Although they are popular, internet couponing costs the advertising business as much as 54.8%. Groupon for example charges the business owner, 50% of sales at

time of purchase online as well as a 4.8% merchant processing fee for credit card payments, the only form of payment accepted online. Alternatively, internet banners, flash ads, and name

recognition purchased through Google, GoDaddy and Yahoo can generate interest for pennies on the search, literally. Google charges as little as 1 cent a search to optimize a business’s name at the top of the internet search page when consumers use key words. Caps can be set on spending

accounts for these producers, allowing monitoring of effectiveness and continuation as well.

Most successfully, in this industry as in many, understanding the consumer is key. A good marketing firm can be an inexpensive way to maximize your advertising dollar. In a new and burgeoning community, with industry popping up everywhere, the City and the Chamber of

Commerce can be key allies in the battle to capture a consumer’s interest. A $30,000 budget is excellent for a theatre in an area where there is little other entertainment choice. A contracted

marketing firm can help determine the most effective marketing in the area and recommend or assist in marketing events. For a retainer and or a negotiated fee, experts are more than happy to do what they do best so that business owners can reach their goals. We would recommend that a

marketing firm be found and contracted for no more than 1/3 of the marketing budget to determine the best course of action.

(11)

Regular Discount

Profit margin (%) 12.75 15.54

Return on assets (%) 6.12 5.44

Alternative 2 (3D Equipment):

(1)

Contribution margin in total dollars 640,000

Contribution margin per unit 8

(2)

Contribution margin ratio 0.4571

(3)

Break-even point in sales dollars 1,071,875

Break-even points in units 61,250

(4)

Degree of operating leverage 4.27

With the premium tickets, our sales revenue is increasing along with our operating leverage. This is a good thing since it means that profits will increase rapidly. Management would want to know this because it means that although the fixed costs are high, our profits will increase

quickly and will make up for it.

(5)

3D

Sales

1,618,750

Variable Cost

878,750

Contribution Margin

740,000

Fixed Costs

490,000

Income Before Taxes

250,000

Tax Rate (32%)

80,000

Net Income

170,000

Amount of tickets to be sold 92,500 (6)

3D

Sales

1,120,000 Variable Cost

608,000

Contribution Margin

512,000 Fixed Costs

490,000

Income Before Taxes

22,000 Tax Rate (32%)

7,040

Net Income

14,960

(7)

Regular 3D

Sales $1,152,000 $1,680,000



Fixed costs 140,000 490,000



Net income $165,920 $189,040

(8)

Regular Discount 3D Theatre

Sales (1000% of predicted) $9,600,000.00 $7,000,000.00 $14,000,000.00

Variable costs 6,400,000.00 3,700,000.00 7,600,000.00

Contribution margin 3,200,000.00 3,300,000.00 6,400,000.00 Fixed costs 140,000.00 170,000.00 490,000.00

Income before taxes 3,060,000.00 3,130,000.00 5,910,000.00 Income taxes (32% rate) 979,200.00 1,001,600.00 1,891,200.00

Net income $2,080,800.00 $2,128,400.00 $4,018,800.00

At a 900% increase in sales, the 3D theatre yields greater net income than the discount theatre. Therefore, if ticket sales greatly increase, the 3D theatre experiences a greater increase in profit.


Sales (50% of predicted) $480,000.00 $350,000.00 $700,000.00

Variable costs 320,000.00 185,000.00 380,000.00

Contribution margin 160,000.00 165,000.00 320,000.00 Fixed costs 140,000.00 170,000.00 490,000.00

Income before taxes 20,000.00 (5,000.00) (170,000.00)

Income taxes (32% rate) 6,400.00 (1,600.00) (54,400.00)

Net income (loss) $13,600.00 $(3,400.00) $(115,600.00)

If ticket sales decline by 50%, the 3D theatre has now become greatly unprofitable. The discount theatre is also has a net loss of income; however, the amount is less. Therefore, if ticket sales decline, the 3D theatre experiences a greater loss than the discount theatre.

Question #4 calculates the operating leverage for each business at the original level of sales:

Regular - 320,000/180,000 = 1.78 Discount - 330,000/160,000 = 2.06 3D Theatre - 640,000/150,000 = 4.27

3D Theatre (after fixed costs removed, year 2 and beyond)) - 640,000/500,000 = 1.28

The 3D theatre has the highest operating leverage, meaning its ratio of fixed costs to variable costs yields the highest value of the three options. The regular theatre has the lowest operating leverage, while the discount theatre has operating leverage between the regular and 3D theatres.

Businesses with higher operating leverage will experience greater net income in times of growth,

but they are also exposed to greater losses if sales decline. As seen above, the 3D theatre has

greater overall volatility. With higher fixed costs, the 3D theatre must make up for the costs with higher volume of sales of tickets.

An interesting fact to note is that after the first year's $350,000 fixed costs are removed, for

subsequent years, the operating leverage for the 3D theatre becomes 1.28, assuming 80,000 ticket sales, lower than both regular and discount theatres.

(9)

The monetary advantages of installing the equipment can be seen in parts 7 and 8. In part

7, assuming ticket sales stay the same (80,000 tickets), the 3D Theatre will have net income of $102,000, whereas the regular theatre would earn $122,400; therefore, there is no monetary advantage. Assuming an increase in ticket sales of 900%, however, the 3D Theatre would earn

$4,018,800 vs. $2,080,800 by the regular theatre, which is a substantial difference. Installing the superior equipment comes at a hefty fixed cost of $350,000, and if the theatre experiences a 50%

decline in ticket sales, the 3D theatre is going to lose $115,600. Thus, the owners must weigh the risk-reward and make a decision. However, the $350,000 costs are for one time purchase and installation. Therefore, after

year one, fixed costs will decrease by $350,000. Assuming 40,000 ticket sales, or a 50% reduction, and reducing fixed costs by $350,0000, the 3D theatre would earn a net profit of

$122,400, thus presenting a great monetary advantage even if ticket sales decline. The math for year two's income is presented below:

3D Theatre

Sales (50% of predicted) $700,000.00 Variable costs 380,000.00

Contribution margin 320,000.00

Fixed costs 140,000.00

Income before taxes 180,000.00 Income taxes (32% rate) 57,600.00

Net income (loss) $122,400.00

Regarding non-monetary advantages, we have to consider what it means to own a movie

theatre. A movie theatre owner owns a business. They are providing a public place of entertainment where strangers can come together to watch movies. What's the difference between a regular theatre, discount theatre, and a 3D theatre?

If we take "regular theatre" as a baseline, standard movie theatre such as Edwards or Regal Cinemas, then discount theatres are movie theatres like 4-Star Cinemas in Garden Grove

or the old Super Saver Cinemas with $2 movies, the difference between those two theatres is that regular theatres are bigger, can seat more people, have much larger screens with better picture quality, and are generally "nicer." An Imax 3D theatre features huge screens and crystal clear

picture quality. Discount theatres are smaller, feels dirtier, with sticky floors from spilled drinks being a common occurrence.

Therefore, one non-monetary advantage of installing superior equipment is the satisfaction of owning a business with top-of-the-line equipment featuring the newest movies, not some old theatre with sticky floors. You're providing a clean environment for young couples

trying to impress each other on a first date, a place for the Star Wars fanatic to watch their

favorite new movie on the biggest screen possible, in 3D. You get the satisfaction of knowing you're providing an amazing movie experience for your customers.

(10)

The biggest impact that a Luxury theatre can take advantage of is new releases. There is

free marketing in the WOW factor that the production houses ensure prior to the actual release

date. On the actual release date, large eye catching events such as having the Avengers (local actors) attend an exhibition outside of the venue, on an advent of a Frozen release, having Ana

and Elsa walking the line with Olaf to take pictures with children as they wait, these events create interest, they create memories, they create consumer trust that brings them back time and again. The recommendations of Alternative 1 coupled with Release Events will guarantee

customers. A luxury theatre has the opportunity to be a destination choice for consumers, not simply an afterthought when they have a few hours and a few dollars. A marketing firm and their

resources and reach would maximize the potential of these ideas. A Luxury theatre with 3D options and guaranteed WOW factor could create their own target audience

(11)

3D

Profit margin (%) 7.29

Return on assets (%) 4.08

Written Report:

American Cinema Theatre (ACT) is a typical movie theatre that husband and wife team,

Bob and Trisha Johnson, began a year ago. This theatre shows new and current movies year

round; 80,000 tickets were sold in their first year of business at the reasonable price of $12 a

ticket. Essentially there is nothing distinct about this theatre. It is not a discount theatre; it does

not have 3D viewing capabilities. It has, however, been a profitable and safe investment for the

Johnsons to date. They are looking for change and increased profitability and have searched out

Blue Group Consulting for recommendations.

Two scenarios were under consideration for the Johnsons. The first was consideration of

a discount theatre. This type of theatre offers prices lower than the average theatre at only $7 a

ticket, and older, out-of-date movies that the average consumer most likely has already seen. The

theatre would bring in 20,000 more customers a year compared to current theatre operations, but

is that enough? The second scenario, a 3D theatre, charges $17.50 a ticket with an experience

that will be quite different than that of a regular or discount theatre. With a 3D theatre the new

and revamped ACT is able to sell a staggering 80,000 tickets a year, potentially retaining the

consumers it feared losing without change.

The location is Menifee, CA. Demographically, Menifee’s median household income of

$53,941 is lower than the California average of $58,328, suggesting discount movies may be in

higher demand. However, the median house or condo value of $219,614 is much lower than the

California average of $349,400, suggesting a lower cost of living (“Menifee, CA,” 2014). Lastly,

also according to city-data.com, Menifee averaged 44 new single-family house building permits

per 10,000 residents, compared to a California average of 8 permits per 10,000, suggesting the

population of Menifee is growing at a much higher rate compared to other California cities.

Population growth translates into greater potential for future income growth.

Blue Group Consulting recommends pursing Alternative 2, purchasing and installing new

digital projection equipment, and turning American Cinema Theatre into a modern, state-of-the-

art 3D movie theatre. Through our extensive research into the city of Menifee and surrounding

areas, we have quantitative and qualitative figures backed up by city demographics which will

confirm our recommendation.

First, let’s start by comparing the financials behind staying with a regular theatre,

switching to a discount theatre, or modernizing to a digital 3D theatre:


Sales $960,000 $700,000 $1,400,000

Variable costs $640,000 $370,000 $760,000

Contribution margin $320,000 $330,000 $640,000

Fixed costs $140,000 $170,000 $490,000

Income before taxes $180,000 $160,000 $150,000

Income taxes (32% rate) $57,600 $51,200 $48,000

Net income $122,400 $108,800 $102,000

Assumptions: regular and 3D theatres assume ticket sales of 80,000 tickets, whereas discount

theatres assume increased ticket sales of 100,000 tickets. Regular ticket price $12, discount ticket

price $7, and 3D ticket price $17.50. 3D theatre includes fixed costs of $350,000 for purchase

and installation of new digital projection equipment. Operating leverage, which measures a

business’s ratio of fixed costs to variable costs, is equal to Contribution Margin / Income Before

Taxes, with Contribution Margin = Sales – Variable Costs. Regular theatre has operating

leverage = 1.78, discount = 2.06, 3D theatre = 4.27

At first glance, it would appear that you should simply stay with the regular theatre.

Picking the discount theatre implies that equivalent ticket sales of 100,000 tickets reduces net

income to $108,800, while the 3D theatre also has lower net income of $102,000. However, if

ticket sales increases by 20%, the regular theatre experiences net income of $165,920, the

discount theatre nets $153,680, and the 3D theatre nets $189,040. Even at 20% increased ticket

sales, the discount theatre still doesn’t match the net income of the regular theatre. The reason

the 3D theatre experiences greater growth in net income is due to its higher operating leverage.

Why should we expect increased ticket sales? With the United States economy

recovering, unemployment reaching new lows, and oil/gasoline prices cratering, Gallup polls are

reporting that consumer spending has continued on an upward trend, increasing to

$95/day/consumer in November as Americans have more cash available for purchases (Riffkin,

2014). Coupled with blockbuster titles coming out in 2015, including Star Wars Episode VII,

Fantastic Four, The Avengers: Age of Ultron, and Jurassic World, movie goers will be drawn to

watch these movies on the 3D screen (“Upcoming Movies 2015,” 2014). The stage is set for

2015 to be a huge movie for movies, which may translate into increased ticket sales.

On the other hand, we do have to recognize that with higher operating leverage, the 3D

theatre could experience greater potential losses if ticket sales decline. If ticket sales decrease by

20%, the regular theatre will have net income of $78,880, the discount theatre will have $63,920,

and the 3D theatre with $14,960. The discount theatre does slightly better than the 3D theatre if

ticket sales decline. Those numbers might sound scary, but bear in mind that after the purchase

and installation costs of $350,000 are removed from fixed costs in subsequent years of operation,

fixed costs for the 3D theatre will go down to $140,000 per year. After year 1, in order to match

net income of $122,400 from the regular theatre, the 3D theatre would only need to sell 61,714

tickets per year. Equivalent sales of 80,000 tickets will result in net income of $340,000 per year.

These are the main quantitative advantages and disadvantages of each theatre.

On the qualitative side, there are many reasons for you to choose the 3D theatre over the

discount theatre. First, installing new equipment would help the theatre differentiate itself from

the competition and give your audience a premium movie viewing experience. There is greater

demand for newly released movies versus movies that have been out for a while. A quick look at

weekend box office records consistently shows newer movies at the top of the list (“Weekend

Box Office,” 2014).

A 3D theatre has the opportunity to maximize marketing exposure and pricing

approaches that both the Luxury theatre goer and the economical theatre goer are after. A regular

theatre with 3D options is able to capitalize on the entire Blockbuster WOW factor for both 3D

and non-3D movie releases, as well as run deeply discounted pricing on low-volume hours. In

essence a regular theatre with the luxury of 3D has the ability to draw the consumer that wants to

make a night an experience and the consumer that would like to see a movie without breaking

the bank.

Movie theatre sales are driven by moviegoer interest and availability. Weekday evenings

after 6pm will always be busier than weekdays at 11am. Weekends are the high volume days,

and Blockbuster Releases equally anticipated by the Theatre owners and moviegoers. Navigating

the fluctuation of customers, weekends, and releases is the key to success. Maximizing the

possibility of having a full house is the reason for valuation after valuation, research after

research, and will exhibit the marketing prowess of every business owner.

A luxury theatre has the opportunity to be a destination choice for consumers, not simply

an afterthought when they have a few hours and a few dollars. A Luxury theatre with 3D options

and guaranteed WOW factor has the ability to create their own target audience. The biggest

impact that a Luxury theatre can take advantage of is new releases. There is free marketing in the

WOW factor that the production houses ensure prior to the actual release date. On the actual

release date, large eye catching events such as having the Avengers (local actors) attend an

exhibition outside of the venue, on an advent of a Frozen release, having Ana and Elsa walking

the line with Olaf to take pictures with children as they wait, these events create interest, they

create memories, they create consumer trust that brings them back time and again. A marketing

firm and their resources and reach would maximize the potential of these ideas.

Bob and Trisha have come to the conclusion that a change in their business plan must be

made. While changing their current regular theatre into a discount theatre would increase ticket

sales, the cut in ticket prices would not make the theatre gain a higher profit. They have also

realized the since their theatres location is in Menifee, CA, a higher ticket price would be

successful. Bob and Trisha have decided to go with alternative 2. They will pay the initial

increased variable and fixed costs to make their theatre into a luxury theatre. After establishing

themselves as a luxury theatre, they will be able to increase their ticket prices from $12 to

$17.50. Because of its location and market demographics, this price increase will not hurt current

sales. After the first year of opening the luxury theatre, net income may actually decrease on

equivalent ticket sales. However, Bob and Trisha are relying on a projected 20% market increase

that will then bring them a net income increase from $165,920 to $189,040 after the market

increase. After the first year, the initial fixed costs of the luxury theatre will be paid off. With a

jump in future ticket sales and an added “wow” factor, Bob and Trisha have high hopes for their

new luxury theatre.

Calculations/Responses:

Alternative 1:

Given info

Regular Discount

Sales $960,000 $700,000



Fixed costs 140,000 170,000



Net income $122,400 $108,800

Part 1:

Regular: Contribution margin in total dollars = Given Information = $320,000

Contribution margin per unit = 320,000/80,000 = $4.00 Discount:

Contribution margin in total dollars = Given Information = $330,000 Contribution margin per unit= 330,000/100,000 = $3.30

Part 2:

Regular:

Selling price per ticket = 960,000/80,000 = $12.00 (need for CMR) Contribution margin ratio = (4/12)*100 = 33.3%

Discount: Selling price per ticket = 700,000/100,000 = $7.00 (need for CMR)

Contribution margin ratio = (3.3/7)*100= 47.1% Part 3:

Regular: Break-even point in sales dollars = 140,000/0.33333333 =$420,000

Break-even points in units = 140,000/4 = 35,000 units Discount:

Break-even point in sales dollars = 170,000/0.47142857 = 360,606 Break-even points in units = 170,000/3.3 = 51,515 units

Part 4:

Regular:

Degree of operating leverage = 320,000/180,000 = 1.78

Discount: Degree of operating leverage = 330,000/160,000 = 2.06

Part 5:

Regular Discount

Sales $1,170,000 $890,909



Fixed costs 140,000 170,000



Net income $170,000 $170,000

Regular:

Net income: Given Information: 170,000 Income before taxes: 170,000/(1-.32) = 250,000

Income taxes (32% rate): 250,000*.32 = 80,000 Fixed Costs: (Given Value) 140,000 Contribution Margin: 250,000+140,000 = 390,000

Sales: 960,000/80,000 = 12 (need for Sales)

640,000/80,000 = 8 (need for Sales) so, 12X – 8X = 390,000 where X is the number of units X = 97,500 units (need for Sales)

97,500* 12 = $1,170,000 = Sales Variable costs:

640,000/80,000 = 8 (need for Variable costs) 97,500*8 = $780,000 = Variable costs

Discount: Net income: Given Information: 170,000 Income before taxes: 170,000/(1-.32) = 250,000

Income taxes (32% rate): 250,000*.32 = 80,000 Fixed Costs: 140,000 + 30,000 = 170,000

Contribution Margin: 250,000+170,000 = 420,000 Sales: 700,000/100,000 = 7 (need for Sales)

370,000/100,000 = 3.7 (need for Sales) so, 7X – 3.7X = 420,000 where X is the number of units

X = 127,272.7273 units (need for Sales) 127,272.7273 * 7 = $890909 = Sales Variable costs:

370,000/100,000 = 3.7 (need for Variable costs) 127,272.7273 *3.7 = $470,909 = Variable costs

Part 6:

Regular Discount

Sales $768,000 $560,000



Fixed costs 140,000 170,000



Net income $78,880 $63,920

Regular:

Sales: 960,000*0.80 = 768,000 Variable costs: 768,000*8/12 = 512,000 CM: 768,000 - 512,000 = 256,000

Fixed costs: (Given Value) 140,000 Income before taxes: 256,000 – 140,000 = 116,000

Income taxes (32% rate): 116,000*0.32 = 37,120 Net income: 116,000 – 37,120 = 78,880

Discount: Sales: 700,000*0.80 = 560,000

Variable costs: 560,000*3.7/7 = 296,000 CM: 560,000 - 296,000 = 264,000 Fixed costs: 140,000 + 30,000 = 170,000

Income before taxes: 264,000 – 170,000 = 94,000 Income taxes (32% rate): 94,000*0.32 = 30,080

Net income: 94,000 – 30,080 = 63,920 Part 7:

Regular Discount

Sales $1,152,000 $840,000



Fixed costs 140,000 170,000



Net income $165,920 $153,680

Regular:

Sales: 960,000*1.20 = 1,152,000 Variable costs: 1,152,000*8/12 = 768,000

CM: 1,152,000 – 768,000 = 384,000 Fixed costs: (Given value) 140,000 Income before taxes: 384,000 – 140,000 = 244,000


Discount:

Sales: 700,000*1.20 = 840,000 Variable costs: 840,000*3.7/7 = 444,000 CM: 840,000 - 444,000 = 396,000

Fixed costs: 140,000 + 30,000 = 170,000 Income before taxes: 396,000 – 170,000 = 226,000


Part 11:

Regular:

Profit margin (%) = (122,400/ 960,000)*100 = 12.75 % Return on assets (%) = 122,400/2,000,000*100 = 6.12%

Discount: Profit margin (%) = (108,800/ 700,000)*100 = 15.54%

Return on assets (%) = 108,800/2,000,000*100 = 5.44 % Alternative 2:

Given info

Regular 3D

Sales $960,000 $1,400,000



Fixed costs 140,000 490,000



Net income $122,400 $102,000

Part 1:

3D:

Contribution margin in total dollars = Given Information = $640,000 Contribution margin per unit= 640,000/800,000 = $8.00

Part 2:

3D:

Selling price per ticket = 1,400,000/80,000 = $17.50 (need for CMR) Contribution margin ratio = (8 /17.50)*100 = 45.7%

Part 3:

3D:

Break-even point in sales dollars = (140,000 + 350,000)/0.4571 = 1,071,875 Break-even points in units = 490,000/8 = 61,250 units

Part 4:

3D: Degree of operating leverage = 640,000/150,000 = 4.27

Part 5:

Regular 3D

Sales $1,030,000 $1,618,750



Fixed costs 140,000 490,000



Net income $170,000 $170,000

3D: Net income: Given Information: 170,000

Income before taxes: 170,000/(1-.32) = 250,000 Income taxes (32% rate): 250,000*.32 = 80,000

Fixed Costs: 140,000 + 350,000 = 490,000 Contribution Margin: 490,000+250,000 = 740,000 Sales:

1,400,000/80,000 = 17.50 (need for Sales) 760,000/80,000 = 9.50 (need for Sales)

so, 17.5X – 9.5X = 740,000 where X is the number of units X = 92,500 units (need for Sales) Sales = 92,500 * 17.5 = $1,618,750

Variable costs: 760,000/80,000 = 9.50 (need for Variable costs) Variable costs = 92,500 * 9.5 = $878,750

Part 6:

Regular 3D

Sales $768,000 $1,120,000



Fixed costs 140,000 490,000



Net income $78,880 $14,960

3D:

Sales: 1,400,000*0.80 = 1,120,000 Variable costs: 1,120,000*9.5/17.5 = 608,000

CM: 1,120,000 – 608,000 = 512,000 Fixed costs: 140,000 + 390,000 = 490,000

Income before taxes: 512,000 – 490,000 = 22,000 Income taxes (32% rate): 22,000*0.32 = 7,040 Net income: 22,000 – 7,040 = 14,960

Part 7:

Regular 3D

Sales $1,152,000 $1,680,000



Fixed costs 140,000 490,000



Net income $165,920 $189,040

3D:

Sales: 1,400,000*1.20 = 1,680,000 Variable costs: 1,680,000*9.5/17.5 = 912,000

CM: 1,680,000 – 912,000 = 768,000 Fixed costs: 140,000 + 350,000 = 490,000 Income before taxes: 768,000 – 490,000 = 278,000


Part 11:

3D: Profit margin (%) = (102,000/ 1,400,000)*100 = 7.29% Return on assets (%) = (102,000/2,500,000)*100 = 4.08%

Works Cited

Menifee, CA. City-Data.com, 2014. Internet. December 5, 2015.

Riffkin, Rebecca. Americans' Consumer Spending Inches Up in November. Gallup, December 1, 2014. Internet. December 5, 2014.

Upcoming Movies 2015. Movie Insider, 2014. Internet. December 5, 2014.

Weekend Box Office: November 28-30, 2014. Box Office Mojo, December 1, 2014. Internet. December 5, 2014.

Data & Analytics

Managerial Accounting Group Project - Written Report