Preliminary plans are under way for the construction of a new stadium for a majo
ID: 3172606 • Letter: P
Question
Preliminary plans are under way for the construction of a new stadium for a major league baseball team. City officials have questioned the number and profitability of the luxury corporate boxes planned for the upper deck of the stadium. Corporations and selected individuals may buy the boxes for $300,000 each. The fixed construction cost for the upper-deck area is estimated to be $4, 500,000, with a variable cost of $150,000 for each box constructed. What is the breakeven point for the number of luxury boxes in the new stadium? Round your answer to the nearest whole number. Breakeven point = luxury boxes Preliminary drawings for the stadium snow that space is available for the construction of up to 50 luxury boxes. Promoters indicate that buyers are available and that all 50 could be said if constructed. What is your recommendation concerning the construction of luxury boxes? In order to maximize profits, the recommendation is to What profit is anticipated? Round your answer to the nearest dollar. Profit =Explanation / Answer
a.
We have to find the break even point for number of luxury boxes in the stadium.
The break even point means a point where total cost and total profit or revenue are equal. It is stage where there is no loss and no profit.
Selling price of 1 box = 300,000
Variable cost of 1 box = 150,000
Therefore profit earned on 1 box = 300,000 - 150,000 = 150,000
To cover total expenditure of 4,500,000 we need = 4,500,000 / 150,000
= 30
Therefore Breakeven point = 30 Luxury boxes.
b)
As the breakeven point is 30 Luxury boxes , any number of boxes greater than 30 are enough to generate profit.
Hence in order to maximize profits , the recommendation is to build 50 luxury boxes.
Profit earned = 150,000 * 50 - 4,500,000 = 3,000,000.