Managerial Accounting Group Project - Written Report

Group Project II
Managerial Accounting
12/7/14
By:
Tim Callahan
Kelly Kuhn
John Mano
Christie Stevens

Alternative 1 (Discount Theatre):
(1)
Contribution margin in total dollars 320,000 330,000
Contribution margin per unit 4 3.3
(2)
Contribution margin ratio 0.3333 0.47142857
(3)
Break-even point in sales dollars 420,000 360,606
Break-even points in units 35,000 51,515
(4)
Degree of operating leverage 1.78 2.06
In this case, with the discount, our sales revenue is decreasing as our operating leverage is
increasing. This is not a good thing. Management needs to know this because it means that its
earnings with the discount theatre will be more volatile.
(5)
Regular Discount
Sales 1,170,000 890,909
Variable costs 780,000 470,909
Contribution margin 390,000 420,000
Fixed costs 140,000 170,000
Income before taxes 250,000 250,000
Income taxes (32% rate) 80,000 80,000
Net income 170,000 170,000
Amount of tickets to be sold 97,500 127,273
(6)
Regular Discount
Sales 768,000 560,000
Fixed costs 140,000 170,000
Net income 78,880 63,920
(7)

Regular Discount
Sales 1,152,000 840,000
Fixed costs 140,000 170,000
Net income 165,920 153,680
(8)
Regular Discount
Sales (1000% of predicted) $9,600,000.00 $7,000,000.00
Variable costs 6,400,000.00 3,700,000.00
Contribution margin 3,200,000.00 3,300,000.00
Fixed costs 140,000.00 170,000.00
Income before taxes 3,060,000.00 3,130,000.00
Income taxes (32% rate) 979,200.00 1,001,600.00
Net income $2,080,800.00 $2,128,400.00
At a 900% increase in sales, the discount theatre yields greater net income than the regular
theatre. Therefore, if ticket sales greatly increase, the discount theatre experiences a greater
increase in profit.
Regular Discount
Sales (50% of predicted) $480,000.00 $350,000.00
Variable costs 320,000.00 185,000.00
Contribution margin 160,000.00 165,000.00
Fixed costs 140,000.00 170,000.00
Income before taxes 20,000.00 (5,000.00)
Income taxes (32% rate) 6,400.00 (1,600.00)
Net income $13,600.00 $(3,400.00)
If ticket sales decline by 50%, the regular theatre is still profitable, while the discount theatre has
now become unprofitable. Therefore, if ticket sales decline, the discount theatre also experiences
a greater loss of income.
Our Point:
Part #4 calculates the operating leverage for each business at the original level of sales:
Regular - 320,000/180,000 = 1.78
Discount - 330,000/160,000 = 2.06
The discount theatre has higher operating leverage, meaning it has higher fixed costs and lower
variable costs. Businesses with higher operating leverage will experience greater net income in
times of growth, but they are also exposed to greater losses if sales decline. Stated simply, a

business with higher operating leverage means it has higher fixed costs, which must be made up
with having high volume of sales. The discount theatre has greater overall volatility.
(9)
9a. Thinking about movie ticket sales, is there any day of the week or time of day when
greater sales are expected? Which theatre type is more sensitive to this occurrence? Which
theatre type is less sensitive to this occurrence?
Movie theatres experience greater sales during the weekend, specifically Friday night
through Sunday night. Movie theatres also experience greater sales at night, after 6pm, when
most people are finished with school and work.
The regular theatre would be more sensitive to this occurrence because most people who
go to the movies on weekend nights would be looking to see a newly-released movie. The
evidence for this is because weekend box office revenue reported on the news almost always
features newly released movies in the top 5. As stated in the question, the discount theatre seeks
to attract teenagers, senior citizens, and large families. Teenagers would watch movies outside of
school hours, meaning afternoon and evening. Senior citizens would probably watch movies in
the afternoon, as most senior citizens wake up early and go to sleep early. Large families would
be more likely to watch movies in the afternoon or early evening, on weekends, when the entire
family can get together. Therefore, the discount theatre still experiences a greater amount of
ticket sales on weekends/evening, just to a lesser extent compared to the regular theatre.
9b. Which theatre type is more advantageous and why?
After completing the calculations in part 8, we believe the regular priced movie theatre is
more advantageous. The regular priced theatre has lower operating leverage, meaning it will
experience less volatility in net income compared to the discount theatre. In addition, at the
extreme rates of growth of 1000%, the discount theatre only experienced a 2% comparative
increase in net income compared to the regular theatre, whereas during the 50% decline in sales,
the regular theatre was still slightly profitable, while the discount theatre began losing money.
Yes, the discount theatre could technically achieve greater net income at high rates of growth;
however, such scenarios are unlikely to occur.
9c. Is there anything else the company can do to manage the decline in sales that come with
certain days and times?
The company can offer promotions to entire more viewers to come during off-hours.
They can offer discounts in the afternoon, in the form of matinee prices, to attract more
customers before 5:30 P.M. Senior citizen discounts can be provided, knowing that most senior
citizens attend the movies in the afternoon anyway. Alternatively, they can offer a flat weekday
price for watch movies from Monday to Thursday to encourage more viewers to come during the
week. Lastly, the company could offer a movie theatre membership, with perhaps 2 primetime
tickets, 2 weekday night tickets, and 2 weekday afternoon tickets per month at a discounted rate
in order to either encourage weekday movie viewership or bundle the bad tickets with the good
tickets.

(10)
The $30,000.00 advertising budget available to announce the change from a regular to
discounted theatre should be aimed at the targeted audience, families with children, lower
income, and older adults. Direct mail and internet advertising work well with this sector of the
market. For as little as $1,500.00 100,000 residents in the Tri-Valley area of Southern Riverside
County can be notified with a full page advertisement in a Clipper Magazine, with a 1% effect
guarantee, this has the potential to generate 10,000 or $70,000 in sales or your money back on
the advertisement. Tracking the success of this advertising choice could be as simple as attaching
a redeemable paper coupon for an additional one time savings or a free Small Soda and Popcorn
would allow management to determine its effectiveness, generate new customers, and mitigate
the expense of the advertising if it does not meet the guaranteed threshold. Product Cost of soda
and kernels are minimal expense when compared to the consumer interest generated.
Recognized internet couponing is an option, but should be used as a last result after other
methods have failed. Although they are popular, internet couponing costs the advertising
business as much as 54.8%. Groupon for example charges the business owner, 50% of sales at
time of purchase online as well as a 4.8% merchant processing fee for credit card payments, the
only form of payment accepted online. Alternatively, internet banners, flash ads, and name
recognition purchased through Google, GoDaddy and Yahoo can generate interest for pennies on
the search, literally. Google charges as little as 1 cent a search to optimize a business’s name at
the top of the internet search page when consumers use key words. Caps can be set on spending
accounts for these producers, allowing monitoring of effectiveness and continuation as well.
Most successfully, in this industry as in many, understanding the consumer is key. A
good marketing firm can be an inexpensive way to maximize your advertising dollar. In a new
and burgeoning community, with industry popping up everywhere, the City and the Chamber of
Commerce can be key allies in the battle to capture a consumer’s interest. A $30,000 budget is
excellent for a theatre in an area where there is little other entertainment choice. A contracted
marketing firm can help determine the most effective marketing in the area and recommend or
assist in marketing events. For a retainer and or a negotiated fee, experts are more than happy to
do what they do best so that business owners can reach their goals. We would recommend that a
marketing firm be found and contracted for no more than 1/3 of the marketing budget to
determine the best course of action.
(11)
Regular Discount
Profit margin (%) 12.75 15.54
Return on assets (%) 6.12 5.44

Alternative 2 (3D Equipment):
(1)
Contribution margin in total dollars 640,000
Contribution margin per unit 8
(2)
Contribution margin ratio 0.4571
(3)
Break-even point in sales dollars 1,071,875
Break-even points in units 61,250
(4)
Degree of operating leverage 4.27
With the premium tickets, our sales revenue is increasing along with our operating leverage. This
is a good thing since it means that profits will increase rapidly. Management would want to
know this because it means that although the fixed costs are high, our profits will increase
quickly and will make up for it.
(5)
3D
Sales 1,618,750
Variable Cost 878,750
Contribution Margin 740,000
Fixed Costs 490,000
Income Before Taxes 250,000
Tax Rate (32%) 80,000
Net Income 170,000
Amount of tickets to be sold 92,500
(6)
3D
Sales 1,120,000
Variable Cost 608,000
Contribution Margin 512,000
Fixed Costs 490,000
Income Before Taxes 22,000
Tax Rate (32%) 7,040
Net Income 14,960
(7)
Regular 3D
Sales $1,152,000 $1,680,000

Fixed costs 140,000 490,000
Net income $165,920 $189,040
(8)
Regular Discount 3D Theatre
Sales (1000% of predicted) $9,600,000.00 $7,000,000.00 $14,000,000.00
Variable costs 6,400,000.00 3,700,000.00 7,600,000.00
Contribution margin 3,200,000.00 3,300,000.00 6,400,000.00
Fixed costs 140,000.00 170,000.00 490,000.00
Income before taxes 3,060,000.00 3,130,000.00 5,910,000.00
Income taxes (32% rate) 979,200.00 1,001,600.00 1,891,200.00
Net income $2,080,800.00 $2,128,400.00 $4,018,800.00
At a 900% increase in sales, the 3D theatre yields greater net income than the discount theatre.
Therefore, if ticket sales greatly increase, the 3D theatre experiences a greater increase in profit.
Sales (50% of predicted) $480,000.00 $350,000.00 $700,000.00
Variable costs 320,000.00 185,000.00 380,000.00
Contribution margin 160,000.00 165,000.00 320,000.00
Fixed costs 140,000.00 170,000.00 490,000.00
Income before taxes 20,000.00 (5,000.00) (170,000.00)
Income taxes (32% rate) 6,400.00 (1,600.00) (54,400.00)
Net income (loss) $13,600.00 $(3,400.00) $(115,600.00)
If ticket sales decline by 50%, the 3D theatre has now become greatly unprofitable. The discount
theatre is also has a net loss of income; however, the amount is less. Therefore, if ticket sales
decline, the 3D theatre experiences a greater loss than the discount theatre.
Question #4 calculates the operating leverage for each business at the original level of sales:
Regular - 320,000/180,000 = 1.78
Discount - 330,000/160,000 = 2.06
3D Theatre - 640,000/150,000 = 4.27
3D Theatre (after fixed costs removed, year 2 and beyond)) - 640,000/500,000 = 1.28
The 3D theatre has the highest operating leverage, meaning its ratio of fixed costs to variable
costs yields the highest value of the three options. The regular theatre has the lowest operating
leverage, while the discount theatre has operating leverage between the regular and 3D theatres.
Businesses with higher operating leverage will experience greater net income in times of growth,
but they are also exposed to greater losses if sales decline. As seen above, the 3D theatre has

greater overall volatility. With higher fixed costs, the 3D theatre must make up for the costs with
higher volume of sales of tickets.
An interesting fact to note is that after the first year's $350,000 fixed costs are removed, for
subsequent years, the operating leverage for the 3D theatre becomes 1.28, assuming 80,000
ticket sales, lower than both regular and discount theatres.
(9)
The monetary advantages of installing the equipment can be seen in parts 7 and 8. In part
7, assuming ticket sales stay the same (80,000 tickets), the 3D Theatre will have net income of
$102,000, whereas the regular theatre would earn $122,400; therefore, there is no monetary
advantage. Assuming an increase in ticket sales of 900%, however, the 3D Theatre would earn
$4,018,800 vs. $2,080,800 by the regular theatre, which is a substantial difference. Installing the
superior equipment comes at a hefty fixed cost of $350,000, and if the theatre experiences a 50%
decline in ticket sales, the 3D theatre is going to lose $115,600. Thus, the owners must weigh the
risk-reward and make a decision.
However, the $350,000 costs are for one time purchase and installation. Therefore, after
year one, fixed costs will decrease by $350,000. Assuming 40,000 ticket sales, or a 50%
reduction, and reducing fixed costs by $350,0000, the 3D theatre would earn a net profit of
$122,400, thus presenting a great monetary advantage even if ticket sales decline. The math for
year two's income is presented below:
3D Theatre
Sales (50% of predicted) $700,000.00
Variable costs 380,000.00
Contribution margin 320,000.00
Fixed costs 140,000.00
Income before taxes 180,000.00
Income taxes (32% rate) 57,600.00
Net income (loss) $122,400.00
Regarding non-monetary advantages, we have to consider what it means to own a movie
theatre. A movie theatre owner owns a business. They are providing a public place of
entertainment where strangers can come together to watch movies. What's the difference
between a regular theatre, discount theatre, and a 3D theatre?
If we take "regular theatre" as a baseline, standard movie theatre such as Edwards or
Regal Cinemas, then discount theatres are movie theatres like 4-Star Cinemas in Garden Grove
or the old Super Saver Cinemas with $2 movies, the difference between those two theatres is that
regular theatres are bigger, can seat more people, have much larger screens with better picture
quality, and are generally "nicer." An Imax 3D theatre features huge screens and crystal clear
picture quality. Discount theatres are smaller, feels dirtier, with sticky floors from spilled drinks
being a common occurrence.
Therefore, one non-monetary advantage of installing superior equipment is the
satisfaction of owning a business with top-of-the-line equipment featuring the newest movies,
not some old theatre with sticky floors. You're providing a clean environment for young couples
trying to impress each other on a first date, a place for the Star Wars fanatic to watch their

favorite new movie on the biggest screen possible, in 3D. You get the satisfaction of knowing
you're providing an amazing movie experience for your customers.
(10)
The biggest impact that a Luxury theatre can take advantage of is new releases. There is
free marketing in the WOW factor that the production houses ensure prior to the actual release
date. On the actual release date, large eye catching events such as having the Avengers (local
actors) attend an exhibition outside of the venue, on an advent of a Frozen release, having Ana
and Elsa walking the line with Olaf to take pictures with children as they wait, these events
create interest, they create memories, they create consumer trust that brings them back time and
again. The recommendations of Alternative 1 coupled with Release Events will guarantee
customers. A luxury theatre has the opportunity to be a destination choice for consumers, not
simply an afterthought when they have a few hours and a few dollars. A marketing firm and their
resources and reach would maximize the potential of these ideas. A Luxury theatre with 3D
options and guaranteed WOW factor could create their own target audience
(11)
3D
Profit margin (%) 7.29
Return on assets (%) 4.08

Written Report:
American Cinema Theatre (ACT) is a typical movie theatre that husband and wife team,
Bob and Trisha Johnson, began a year ago. This theatre shows new and current movies year
round; 80,000 tickets were sold in their first year of business at the reasonable price of $12 a
ticket. Essentially there is nothing distinct about this theatre. It is not a discount theatre; it does
not have 3D viewing capabilities. It has, however, been a profitable and safe investment for the
Johnsons to date. They are looking for change and increased profitability and have searched out
Blue Group Consulting for recommendations.
Two scenarios were under consideration for the Johnsons. The first was consideration of
a discount theatre. This type of theatre offers prices lower than the average theatre at only $7 a
ticket, and older, out-of-date movies that the average consumer most likely has already seen. The
theatre would bring in 20,000 more customers a year compared to current theatre operations, but
is that enough? The second scenario, a 3D theatre, charges $17.50 a ticket with an experience
that will be quite different than that of a regular or discount theatre. With a 3D theatre the new
and revamped ACT is able to sell a staggering 80,000 tickets a year, potentially retaining the
consumers it feared losing without change.
The location is Menifee, CA. Demographically, Menifee’s median household income of
$53,941 is lower than the California average of $58,328, suggesting discount movies may be in
higher demand. However, the median house or condo value of $219,614 is much lower than the
California average of $349,400, suggesting a lower cost of living (“Menifee, CA,” 2014). Lastly,
also according to city-data.com, Menifee averaged 44 new single-family house building permits
per 10,000 residents, compared to a California average of 8 permits per 10,000, suggesting the

population of Menifee is growing at a much higher rate compared to other California cities.
Population growth translates into greater potential for future income growth.
Blue Group Consulting recommends pursing Alternative 2, purchasing and installing new
digital projection equipment, and turning American Cinema Theatre into a modern, state-of-the-
art 3D movie theatre. Through our extensive research into the city of Menifee and surrounding
areas, we have quantitative and qualitative figures backed up by city demographics which will
confirm our recommendation.
First, let’s start by comparing the financials behind staying with a regular theatre,
switching to a discount theatre, or modernizing to a digital 3D theatre:
Sales $960,000 $700,000 $1,400,000
Variable costs $640,000 $370,000 $760,000
Contribution margin $320,000 $330,000 $640,000
Fixed costs $140,000 $170,000 $490,000
Income before taxes $180,000 $160,000 $150,000
Income taxes (32%
rate) $57,600 $51,200 $48,000
Net income $122,400 $108,800 $102,000
Assumptions: regular and 3D theatres assume ticket sales of 80,000 tickets, whereas discount
theatres assume increased ticket sales of 100,000 tickets. Regular ticket price $12, discount ticket
price $7, and 3D ticket price $17.50. 3D theatre includes fixed costs of $350,000 for purchase
and installation of new digital projection equipment. Operating leverage, which measures a
business’s ratio of fixed costs to variable costs, is equal to Contribution Margin / Income Before
Taxes, with Contribution Margin = Sales – Variable Costs. Regular theatre has operating
leverage = 1.78, discount = 2.06, 3D theatre = 4.27

At first glance, it would appear that you should simply stay with the regular theatre.
Picking the discount theatre implies that equivalent ticket sales of 100,000 tickets reduces net
income to $108,800, while the 3D theatre also has lower net income of $102,000. However, if
ticket sales increases by 20%, the regular theatre experiences net income of $165,920, the
discount theatre nets $153,680, and the 3D theatre nets $189,040. Even at 20% increased ticket
sales, the discount theatre still doesn’t match the net income of the regular theatre. The reason
the 3D theatre experiences greater growth in net income is due to its higher operating leverage.
Why should we expect increased ticket sales? With the United States economy
recovering, unemployment reaching new lows, and oil/gasoline prices cratering, Gallup polls are
reporting that consumer spending has continued on an upward trend, increasing to
$95/day/consumer in November as Americans have more cash available for purchases (Riffkin,
2014). Coupled with blockbuster titles coming out in 2015, including Star Wars Episode VII,
Fantastic Four, The Avengers: Age of Ultron, and Jurassic World, movie goers will be drawn to
watch these movies on the 3D screen (“Upcoming Movies 2015,” 2014). The stage is set for
2015 to be a huge movie for movies, which may translate into increased ticket sales.
On the other hand, we do have to recognize that with higher operating leverage, the 3D
theatre could experience greater potential losses if ticket sales decline. If ticket sales decrease by
20%, the regular theatre will have net income of $78,880, the discount theatre will have $63,920,
and the 3D theatre with $14,960. The discount theatre does slightly better than the 3D theatre if
ticket sales decline. Those numbers might sound scary, but bear in mind that after the purchase
and installation costs of $350,000 are removed from fixed costs in subsequent years of operation,
fixed costs for the 3D theatre will go down to $140,000 per year. After year 1, in order to match
net income of $122,400 from the regular theatre, the 3D theatre would only need to sell 61,714

tickets per year. Equivalent sales of 80,000 tickets will result in net income of $340,000 per year.
These are the main quantitative advantages and disadvantages of each theatre.
On the qualitative side, there are many reasons for you to choose the 3D theatre over the
discount theatre. First, installing new equipment would help the theatre differentiate itself from
the competition and give your audience a premium movie viewing experience. There is greater
demand for newly released movies versus movies that have been out for a while. A quick look at
weekend box office records consistently shows newer movies at the top of the list (“Weekend
Box Office,” 2014).
A 3D theatre has the opportunity to maximize marketing exposure and pricing
approaches that both the Luxury theatre goer and the economical theatre goer are after. A regular
theatre with 3D options is able to capitalize on the entire Blockbuster WOW factor for both 3D
and non-3D movie releases, as well as run deeply discounted pricing on low-volume hours. In
essence a regular theatre with the luxury of 3D has the ability to draw the consumer that wants to
make a night an experience and the consumer that would like to see a movie without breaking
the bank.
Movie theatre sales are driven by moviegoer interest and availability. Weekday evenings
after 6pm will always be busier than weekdays at 11am. Weekends are the high volume days,
and Blockbuster Releases equally anticipated by the Theatre owners and moviegoers. Navigating
the fluctuation of customers, weekends, and releases is the key to success. Maximizing the
possibility of having a full house is the reason for valuation after valuation, research after
research, and will exhibit the marketing prowess of every business owner.
A luxury theatre has the opportunity to be a destination choice for consumers, not simply
an afterthought when they have a few hours and a few dollars. A Luxury theatre with 3D options

and guaranteed WOW factor has the ability to create their own target audience. The biggest
impact that a Luxury theatre can take advantage of is new releases. There is free marketing in the
WOW factor that the production houses ensure prior to the actual release date. On the actual
release date, large eye catching events such as having the Avengers (local actors) attend an
exhibition outside of the venue, on an advent of a Frozen release, having Ana and Elsa walking
the line with Olaf to take pictures with children as they wait, these events create interest, they
create memories, they create consumer trust that brings them back time and again. A marketing
firm and their resources and reach would maximize the potential of these ideas.
Bob and Trisha have come to the conclusion that a change in their business plan must be
made. While changing their current regular theatre into a discount theatre would increase ticket
sales, the cut in ticket prices would not make the theatre gain a higher profit. They have also
realized the since their theatres location is in Menifee, CA, a higher ticket price would be
successful. Bob and Trisha have decided to go with alternative 2. They will pay the initial
increased variable and fixed costs to make their theatre into a luxury theatre. After establishing
themselves as a luxury theatre, they will be able to increase their ticket prices from $12 to
$17.50. Because of its location and market demographics, this price increase will not hurt current
sales. After the first year of opening the luxury theatre, net income may actually decrease on
equivalent ticket sales. However, Bob and Trisha are relying on a projected 20% market increase
that will then bring them a net income increase from $165,920 to $189,040 after the market
increase. After the first year, the initial fixed costs of the luxury theatre will be paid off. With a
jump in future ticket sales and an added “wow” factor, Bob and Trisha have high hopes for their
new luxury theatre.

Calculations/Responses:
Alternative 1:
Given info
Regular Discount
Sales $960,000 $700,000
Fixed costs 140,000 170,000
Net income $122,400 $108,800
Part 1:
Regular:
Contribution margin in total dollars = Given Information = $320,000
Contribution margin per unit = 320,000/80,000 = $4.00
Discount:
Contribution margin per unit= 330,000/100,000 = $3.30
Part 2:
Regular:
Selling price per ticket = 960,000/80,000 = $12.00 (need for CMR)
Contribution margin ratio = (4/12)*100 = 33.3%
Discount:
Selling price per ticket = 700,000/100,000 = $7.00 (need for CMR)
Contribution margin ratio = (3.3/7)*100= 47.1%
Part 3:
Regular:
Break-even point in sales dollars = 140,000/0.33333333 =$420,000
Break-even points in units = 140,000/4 = 35,000 units
Discount:
Break-even point in sales dollars = 170,000/0.47142857 = 360,606
Break-even points in units = 170,000/3.3 = 51,515 units
Part 4:
Regular:
Degree of operating leverage = 320,000/180,000 = 1.78

Discount:
Part 5:
Regular Discount
Sales $1,170,000 $890,909
Fixed costs 140,000 170,000
Net income $170,000 $170,000
Regular:
Net income: Given Information: 170,000
Income before taxes: 170,000/(1-.32) = 250,000
Income taxes (32% rate): 250,000*.32 = 80,000
Fixed Costs: (Given Value) 140,000
Contribution Margin: 250,000+140,000 = 390,000
Sales:
960,000/80,000 = 12 (need for Sales)
640,000/80,000 = 8 (need for Sales)
so, 12X – 8X = 390,000 where X is the number of units
X = 97,500 units (need for Sales)
97,500* 12 = $1,170,000 = Sales
Variable costs:
640,000/80,000 = 8 (need for Variable costs)
97,500*8 = $780,000 = Variable costs
Discount:
Fixed Costs: 140,000 + 30,000 = 170,000
Sales:
700,000/100,000 = 7 (need for Sales)
370,000/100,000 = 3.7 (need for Sales)
so, 7X – 3.7X = 420,000 where X is the number of units
X = 127,272.7273 units (need for Sales)
127,272.7273 * 7 = $890909 = Sales
Variable costs:
370,000/100,000 = 3.7 (need for Variable costs)
127,272.7273 *3.7 = $470,909 = Variable costs

Part 6:
Regular Discount
Sales $768,000 $560,000
Fixed costs 140,000 170,000
Net income $78,880 $63,920
Regular:
Sales: 960,000*0.80 = 768,000
Variable costs: 768,000*8/12 = 512,000
CM: 768,000 - 512,000 = 256,000
Fixed costs: (Given Value) 140,000
Income before taxes: 256,000 – 140,000 = 116,000
Income taxes (32% rate): 116,000*0.32 = 37,120
Net income: 116,000 – 37,120 = 78,880
Discount:
Sales: 700,000*0.80 = 560,000
Variable costs: 560,000*3.7/7 = 296,000
CM: 560,000 - 296,000 = 264,000
Fixed costs: 140,000 + 30,000 = 170,000
Net income: 94,000 – 30,080 = 63,920
Part 7:
Regular Discount
Sales $1,152,000 $840,000
Fixed costs 140,000 170,000
Net income $165,920 $153,680
Regular:
Sales: 960,000*1.20 = 1,152,000
Variable costs: 1,152,000*8/12 = 768,000
CM: 1,152,000 – 768,000 = 384,000
Fixed costs: (Given value) 140,000

Net income: 244,000 – 78,080 = 165,920
Discount:
Sales: 700,000*1.20 = 840,000
Variable costs: 840,000*3.7/7 = 444,000
CM: 840,000 - 444,000 = 396,000
Fixed costs: 140,000 + 30,000 = 170,000
Net income: 226,000 – 72,320 = 153,680
Part 11:
Regular:
Profit margin (%) = (122,400/ 960,000)*100 = 12.75 %
Return on assets (%) = 122,400/2,000,000*100 = 6.12%
Discount:
Profit margin (%) = (108,800/ 700,000)*100 = 15.54%
Return on assets (%) = 108,800/2,000,000*100 = 5.44 %
Alternative 2:
Given info
Regular 3D
Sales $960,000 $1,400,000
Fixed costs 140,000 490,000
Net income $122,400 $102,000
Part 1:
3D:
Contribution margin per unit= 640,000/800,000 = $8.00
Part 2:
3D:
Selling price per ticket = 1,400,000/80,000 = $17.50 (need for CMR)
Contribution margin ratio = (8 /17.50)*100 = 45.7%
Part 3:
3D:

Break-even point in sales dollars = (140,000 + 350,000)/0.4571 = 1,071,875
Break-even points in units = 490,000/8 = 61,250 units
Part 4:
3D:
Part 5:
Regular 3D
Sales $1,030,000 $1,618,750
Fixed costs 140,000 490,000
Net income $170,000 $170,000
3D:
Fixed Costs: 140,000 + 350,000 = 490,000
Sales:
1,400,000/80,000 = 17.50 (need for Sales)
760,000/80,000 = 9.50 (need for Sales)
so, 17.5X – 9.5X = 740,000 where X is the number of units
X = 92,500 units (need for Sales)
Sales = 92,500 * 17.5 = $1,618,750
Variable costs:
760,000/80,000 = 9.50 (need for Variable costs)
Variable costs = 92,500 * 9.5 = $878,750
Part 6:
Regular 3D
Sales $768,000 $1,120,000
Fixed costs 140,000 490,000
Net income $78,880 $14,960
3D:

Sales: 1,400,000*0.80 = 1,120,000
Variable costs: 1,120,000*9.5/17.5 = 608,000
CM: 1,120,000 – 608,000 = 512,000
Fixed costs: 140,000 + 390,000 = 490,000
Net income: 22,000 – 7,040 = 14,960
Part 7:
Regular 3D
Sales $1,152,000 $1,680,000
Fixed costs 140,000 490,000
Net income $165,920 $189,040
3D:
Sales: 1,400,000*1.20 = 1,680,000
Variable costs: 1,680,000*9.5/17.5 = 912,000
CM: 1,680,000 – 912,000 = 768,000
Fixed costs: 140,000 + 350,000 = 490,000
Net income: 278,000 – 88,960 = 189,040
Part 11:
3D:
Profit margin (%) = (102,000/ 1,400,000)*100 = 7.29%
Return on assets (%) = (102,000/2,500,000)*100 = 4.08%

Works Cited
Menifee, CA. City-Data.com, 2014. Internet. December 5, 2015.
Riffkin, Rebecca. Americans' Consumer Spending Inches Up in November. Gallup, December 1,
2014. Internet. December 5, 2014.
Upcoming Movies 2015. Movie Insider, 2014. Internet. December 5, 2014.
Weekend Box Office: November 28-30, 2014. Box Office Mojo, December 1, 2014. Internet.
December 5, 2014.

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