Question # 2 Steel Star Orchestra would like to stage an event. Fixed costs for
ID: 2578341 • Letter: Q
Question
Question # 2 Steel Star Orchestra would like to stage an event. Fixed costs for the event total $5,000. T will sell for $15 per person, and a promoter responsible for processing ticket orders charges the Orchestra a fee of $2 per ticket. Steel Star Orchestra expects to sell 500 tickets. ickets A) Calculate the following: . How many tickets must Steel Star sell to break even? 2. (3 Marks) How many tickets must Steel Star sell to earn a profit of $7,000? 3. How much must Steel Star have in sales dollars to break even? 4. How much must Steel Star have in sales dollars to earn a profit of $7,000? (3 Marks) (3 Marks) (3 Marks) 5. What is the Orchestra's margin of safety in units and in sales dollars? (3 Marks) B) What is sensitivity analysis and how might it help those performing cos- volume-profit analysis?Explanation / Answer
Answer A-1 No.of tickets Steel Star must sale to break even = Fixed cost for the event / (Selling price per ticket - Ticket order processing fees per ticket) No.of tickets Steel Star must sale to break even = $5000 / ($15 - $2) = 384.61 i.e.385 tickets Answer A-2 No.of tickets Steel Star must sale to earn profit og $7000 = (Fixed cost for the event+Required profit) / (Selling price per ticket - Ticket order processing fees per ticket) No.of tickets Steel Star must sale to earn profit og $7000 = ($5000 + $7000)/($15 - $2) = 923.08 i.e.923 tickets Answer A-3 Sales dollars to break even = 385 tickets * $15 = $5,775 Answer A-4 Sales dollars to earn profit of $7000 = 923 tickets * $15 = $13,845 Answer A-5 Margin of safety = Actual or budgeted sales - Sales required for break even Margin of safety in units = 923 units - 385 units = 538 units Margin of safety in sales dollars = $13845 - $5775 = $8070