The Excellent Promotions Company promotes concerts. The company has three fulltime employees who are responsible for contracting with bands, renting venues for the concert, and advertising the concert. The cost of operating the office including the salary of the three full-time employees (but not including advertising and specific concert payments) is $200,000 annually. Temporary help is added the day of the concert to assist in security, ticket sales, and cleaning up. These employees are added based on the expected ticket sales of the concert. Usually by the day of the concert, the company can estimate ticket sales quite well based on advance ticket sales. These employees are paid $10 per hour and work for an average of five hours at each concert. The number of employees that must be hired include one security employee for each 100 tickets sold, one ticket seller for every 400 tickets sold, and one employee for cleaning up for every 200 tickets sold. Excellent Promotions Company is considering bringing a jazz band in for a concert. The jazz band wants $20,000 to come and perform. The company can rent a local hall that holds 2,400 concert fans for $5,000. The sales price for a ticket to the concert is expected to be $20. A local catering company is willing to pay $500 to the promotions company to sell food and drinks at the concert. The concert advertising budget is expected to be $2,000.
a. How should the salaries of the three full-time employees of the company be treated in analyzing the profitability of the concert with the jazz band?
b. The success of this concert depends on the number of ticket sales. What is the break-even point in terms of ticket sales?
c. What is the maximum profit that this concert can generate?
d. Suppose that Excellent Promotions decides to promote the concert. On the day of the concert, there have been no advance ticket sales and there is every indication of a disaster. Exhibit 1 shows the number of people the company estimates will come if the sales price is reduced. What ticket price will provide Excellent Promotions with the greatest profit?
