13 Jan Start with an introduction

Module 2 – Case

COST–VOLUME–PROFIT ANALYSIS

Case Assignment

The Annie Smith Dance Center

The Director of Annie Smith Dance Center is asking for assistance with the financial aspects of running a professional group of performers. She wants financial information presented in an easy to read format and a better understand of the profitability of the concerts and the organization as a whole.

The Annie Smith professional group features four dance concerts each year. Three of the dance concerts showcase a different genre. The fourth performance is a Christmas Spectacular, which is the most popular dance concert and is therefore scheduled every year. Ms. Smith has tentatively scheduled the following four dance concerts for the coming season. The schedule below shows the type and number of performances and direct cost per type of concert. Examples of direct fixed costs are costumes, rehearsals, royalties, guest artist fees, choreography, and salaries of production staff, music, and wardrobe for each of the four concerts.

Descriptions

Number of Performances

Cost per Dance Concert (direct fixed costs)

Hip Hop Concert

10

$45,000

Jazz and Tap Dance

5

88,000

Modern Dance

10

95,000

Christmas Spectacular

20

25,000

$253,000

Additional costs:

Variable costs associated with each performance are shown below.

Musicians

$7,500

Rental of auditorium

2,500

Dancers’ compensation

7,000

General administrative and operating costs for the dance center are:

Administrative staff

$185,000

Insurance

25,000

Marketing

215,000

General office expenses

90,000

Lower Orchestra Section (A)

Upper Orchestra Section (B)

Descriptions

No. of Seats

Ticket Price

Tickets Sold per Performance

No. of Seats

Ticket Price

Tickets Sold per Performance

Hip Hop Performance

150

$85

100%

450

$50

90%

Jazz and Tap Dance

150

$85

100%

450

$50

60%

Modern Dance

150

$85

100%

450

$50

95%

Christmas Spectacular

150

$125

100%

450

$50

100%

Required:

Computations (use Excel)

Summarize key financial information in a table as shown below.

Title

Name of Dance Concert

Revenues/Performance

Variable Costs/Performance

Contribution Margin/Performance

Total Contribution/Type of Dance Concert

Direct Fixed Costs

Segment Margin/Type of Concert

1.

2.

3.

4.

Total

Prepare a segmented income statement in good format.

Compute the number of performances required to break even for each concert. These are separate computations for each dance concert.

Compute break even for the organization as a whole and express the result in revenues instead of the number of performances.

Ms. Smith wants to performance group to show at least $150,000 in operating profit. What level of revenues does the performance group need to achieve to meet this goal?

Give a recommendation about changes Ms. Smith can make to achieve the target profit. Support your idea with computations.

Memo (use Word)

Write a four or five paragraph memo to the owner of the dance center to assist her in interpreting the financial analysis. Start with an introduction and end with a recommendation. Each of the four or five paragraphs should have a heading.

Short Essay (use Word)

Start with an introduction and end with a summary or conclusion. Use headings.

What are some shortcomings of multi-product even analysis?

How does demand and resource constraints affect this type of analysis.

Assignment Expectations

Each submission should include two files: (1) An Excel file; and (2) A Word document. The Word document shows the memo first and short essay last. Assume a knowledgeable business audience and use required format and length. Individuals in business are busy and want information presented in an organized and concise manner.