Productions Ltd. is promoting a rock concert in London
Productions Ltd. is promoting a rock concert in London. The bands will receive a flat fee of £7 million in cash. The concert will be shown worldwide on closed-circuit television. BBT will collect 100 percent of the receipts and will return 30 percent to the individual local closed-circuit theatre managers. BBT expects to sell 1.1 million seats at a net average price of £13 each. BBT will also receive £300,000 from the London arena (which has sold out its 19,500 seats, ranging from £150 for box seats to £20 for general admission, for a gross revenue of £1.25 million); BBT will not share the £300,000 with the local promoters. 1. The general manager of BBT Productions is trying to decide what amount to spend for advertising. What is the most BBT could spend and still break even on overall operations, assuming sales of 1.1 million tickets?2. If BBT desires an operating income of £500,000, how many seats would it have to sell? Assume that the average price is £13 and the total fixed costs (including £2,000,000 in advertising) are £9 million.Answer:
1. Let X = amount of additional fixed costs for advertising
(1,100,000 x£13) + £300,000 – 0.30(1,100,000 x£13) – (£7,000,000 + X) = 0 £14,300,000 +£300,000 –£4,290,000 –£7,000,000 – X = 0 X =£14,600,000 –£11,290,000 X =£3,310,000
2. Let Y = number of seats sold
£13Y +£300,000 – 0.30(£13)Y –£9,000,000 = £500,000 £9.10Y = £9,200,000 Y = 1,010,989 seats
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