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Solutions Guide: Please do not present as your own.

I sometimes post solutions

from the book’s solutions manual, or a mix of my work and the books solutions
manual. But this is only meant as a solutions guide for you to answer the problem
on your own. I recommend doing this with any content you buy online whether
from me or from someone else.

2-43 Movie Manager Malia Mahler is the manager of Stanford’s traditional Sunday
Flicks. Each Sunday, a film has two showings. The admission price is deliberately set at a
very low $3. She sells a maximum of 500 tickets for each showing. The rental of the
auditorium is $330 and labor is $435, including $90 for Mahler. Mahler must pay the film
distributor a guarantee, ranging from $300 to $900, or 50% of gross admission receipts,
whichever is higher. Before and during the show, she sells refreshments; these sales
average 12% of gross admission receipts and yield a contribution margin of 40%. 1. On
June 3, Mahler screened Little Miss Sunshine. The film grossed $2,250. The guarantee to
the distributor was $750, or 50% of gross admission receipts, whichever is higher. What
operating income was produced for the Students’ Association, which sponsored the
showings? 2. Recompute the results if the film grossed $1,400. 3. The “four-wall”
concept is increasingly being adopted by movie producers. In this plan, the movie’s
producer pays a fixed rental to the theater owner for, say, a week’s showing of a movie.
As a theater owner, how would you evaluate a “four-wall” offer?

Film Refreshments Total

1. Revenue from admissions $2,250 $270 b $2,520
Variable costs 1,125 a 162 c 1,287
Contribution margin $1,125 $108 $1,233
Fixed costs:
Auditorium rental $330
Labor 435 765
Operating income $ 468
.50 x $2,250 = $1,125
.12 x $2,250 = $270
.60 x $ 270 = $162

Some labor might be exclusively devoted to refreshments. Labor might be

allocated, but such a discussion is not the major point of this chapter.

Film Refreshments Total

2. Revenue from admissions $1,400.00 $168.00 b $1,568.00
Variable costs 750.00a 100.80c 850.80
Contribution margin $650.00 $ 67.20 $ 717.20
Fixed costs:
Auditorium rental $330
Labor 435 765.00
Operating income (loss) $ (47.80)

a Guarantee is $750
b .12 x $1,400 = $168
c .60 x $168 = $100.80

3. The offer would shift the risk completely to the movie producer, whereas
ordinarily the theater owner bears a great deal of the risk. The owner is
assured of a specified income; the producer then reaps the reward or bears
the cost of the actual attendance level.