Problem 3 what should be the average ticket prices

Problem #3: What should be the average ticket prices for the KFBS concert if the fixed-
pay fee is $200,000 and the Pavilion expects to sell 7,000 tickets and wants to earn
$30,000 after 40% taxes?
Problem #4: Negotiating the fees for KFBS ALLStars: fixed-pay or per capita contracts?
a)What is the maximum fixed fee that the Pavilion can pay the KFBS Allstars if the Pavilion
wants to earn $45,000 after 40 percent tax and expects the show to have an average ticket
price of $22.12? Assume the show is expected to draw 6,000 paying ticket holders.
b)What is the maximum fixed fee that the Pavilion can pay the KFBS Allstars if the Pavilion
wants to earn $45,000 after 40 percent tax and expects the show to have an average ticket
price of $22.12? Assume, including 25 percent comp tickets, the show is expected to be a sell-
out.
c)Independent of (a) and (b), what is the maximum per capita fee that they Pavilion can pay the
KFBS Allstars, whose concert is expected to be a sellout, if the Pavilion want to earn $180,000
after $40,000 percent tax from an average ticket price of $22.12 per ticket?
4

Problem #5: What role does CVP analysis and operating leverage play in contract
negotiations with different types of performers (fixed and per capita)?
This operating leverage is different from financial leverage where most of the assets would be
raised by issuing debt rather than equity-stock.
The return on sales can potentially be higher using more operating leverage because once the
break-even point is achieved in terms of sales dollars, all money (sales revenue) above that
directly applies to your contribution figure. However, the first is also in a more precarious
situation if the sales forecast is considerably overly optimistic and therefore overstated. In that
case, the firm will not be able to meet the breakeven point because it does not have enough