Preiminary plans are underway for construction of a new stadium for a major leag

Question

Preiminary plans are underway for construction of a new stadium for a major league baseball team. City officials question the number and profitability of the luxury corporate boxes planned for the upper deck of the stadium. Corporations and selected individuals may purchase & box for $300000. The fixed construction cost for the upper-deck aree is estimated to be $4575000, with a varieble cost of $125000 for each box constructed a. What is the broakoven point for the number of luxury boxes in the now stadium? luxury boxes Breakeven point b. Preliminary drawings for the stadium show that space i$ available or tho construction of up to 47 luxury boxes Promoters indicate that buyers re avai ble and that a" 47 could be sold if constructed what is your recommendation concerning the construction of luxury boxes? The input in the box below will not be graded, but may be reviewed and considered by your instructor. What pront is anticipated? Profit

Explanation / Answer

A)break even point = Fixed cost/(price -variable cost)

     = 4575000 /(300000-125000)

     = 4575000/ 175000

    = 26.14 luxury boxes   [rounded to 27 ]

b)since the number of boxes anticipated for construction is more than the breakeven point boxes, construction of luxury boxes should be undertaken.

Anticipated profit = number of boxes [price-variable cost ] - fixed cost

         = 47[300000-125000] - 4575000

        = [47* 175000] -4575000

        = 8225000-4575000

           = 3650000

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