Question

CVP, Not for profit Monroe Classical Music Society is a not-for-profit organization that brings guest artists to the community’s greater metropolitan area. The Music Society just bought a small concert hall in the center of town to house its performances. The mortgage payments on the concert hall are expected to be $2,000 per month. The organization pays its guest performers $1,000 per concert and anticipates corresponding ticket sales to be $2,500 per event. The Music Society also incurs costs of approximately $500 per concert for marketing and advertising. The organization pays its artistic director $50,000 per year and expects to receive $40,000 in donations in addition to its ticket sales.Required1. If the Monroe Classical Music Society just breaks even, how many concerts does it hold?2. In addition to the organization’s artistic director, the Music Society would like to hire a marketing director for $40,000 per year. What is the breakeven point? The Music Society anticipates that the addition of a marketing director would allow the organization to increase the number of concerts to 60 per year. What is the Music Society’s operating income/(loss) if it hires the new marketing director?3. The Music Society expects to receive a grant that would provide the organization with an additional $20,000 toward the payment of the marketing director’s salary. What is the breakeven point if the Music Society hires the marketing director and receives the grant?

Answer 1

Answer:

1. If the Monroe Classical Music Society just breaks even, how many concerts does it hold?

break even = $34,000 / $1,000 = 34 concerts per year

2. In addition to the organization’s artistic director, the Music Society would like to hire a marketing director for $40,000 per year. What is the break even point?

break even = $74,000 / $1,000 = 74 concerts per year

The Music Society anticipates that the addition of a marketing director would allow the organization to increase the number of concerts to 60 per year. What is the Music Society’s operating income/(loss) if it hires the new marketing director?

loss = (60 x $1,000) - $74,000 = $60,000 - $74,000 = -$14,000

3. The Music Society expects to receive a grant that would provide the organization with an additional $20,000 toward the payment of the marketing director’s salary. What is the break even point if the Music Society hires the marketing director and receives the grant?

break even = $54,000 / $1,000 = 54 concerts per year

Explanation:

fixed costs = $24,000 (mortgage) + $50,000 (artistic director) = $74,000

variable costs per concert = $1,000 (artist) - $500 (marketing) = $1,500

revenue = $2,500 per concert

contribution margin per concert = $2,500 - $1,500 = $1,000

other revenues = $40,000 per year

net fixed costs = $74,000 - $40,000 = $34,000