The AP needs to earn 300,000 before taxes to realize 180,000 after tax operating income. C = percapita fee, and recall that the comp rate for per capita contracts is 2.5%. (500) of the ticketpaying patrons, so ticket sales are expected to be 19,500. Then,CM from paying ticket + CM from non-paying = new fixed cost + desired profit(37.03-C) x 19,500 + 10.04 x 500 = 102,610 + 300,000C = 16.64. At the average ticket price of 22.12, the performer on a per capita fee contract canexpect to receive a total of $324,495 (16.64 x 19,500)CVP Analysis and Operating LeverageOperating Leverage = Contribution Margin/Operating Income.Operating leverage will be high when fixed costs are high.The ALLTEL Pavilion is a fixed fee situation because the fixed costs, including the fixed fee topay the performer, will be high. (This means high operating leverage)As a result, the high fixed fee increases the amount of the loss if attendance falls below break-even.The high risk makes reaching the breakeven point important when contracting fixed feeperformances.In contrast, attaining break even is most likely not a major hurdle for concerts per capita artistsbecause of the substantially lower FC (low FC and low operating leverage) and the high drawingpower of per capita artists.However, the pavilion would enjoy a high operating leverage forperformances by fixed fee performers, thus the potential for large gains with this type of contract.
