Cost Volume Profit Analysis of Movie Theater Operations

Using the below information: write 1100 words not including the 8 peer reviewed articles from (2017-2021) please use APA 7 and include the DOI in reference area: Using Cost Volume Profit Analysis to develop a real-world application paper. The application will be applied to Movie Theater Management job. Show how the Cost Volume Profit Analysis would be applied to a Movie Theater in its strategic allocation of financial resources.

Please also use rubric below to help guide writing: Synthesis of Knowledge (Focus/Thesis): Student exhibits a defined and clear understanding of the assignment. Thesis is clearly defined and well constructed to help guide the reader throughout the assignment. Student builds upon the thesis of the assignment with well-documented and exceptional supporting facts, figures, and/or statements. Foundation of Knowledge: Student demonstrates proficient command of the subject matter in the assignment. Assignment shows an impressive level of depth of student’s ability to relate course content to practical examples and applications. Student provides comprehensive analysis of details, facts, and concepts in a logical sequence. Application of Knowledge: Student demonstrates a higher level of critical thinking necessary for graduate-level work. Student provides a strategic approach in presenting examples of problem solving or critical thinking, while drawing logical conclusions which are not immediately obvious. Student provides well-supported ideas and reflection with a variety of current and/or world views in the assignment. Student presents a genuine intellectual development of ideas throughout assignment. Organization of Ideas/Format: Advanced Student thoroughly understands and excels at explaining all major points. An original, unique, and/or imaginative approach to overall ideas, concepts, and findings is presented. Overall format of assignment includes an appropriate introduction (or abstract), well-developed paragraphs, and conclusion. Finished assignment demonstrates student’s ability to plan and organize research in a logical sequence. Writing Skill: Student demonstrates an excellent command of grammar, as well as presents research in a clear and concise writing style. Presents a thorough, extensive understanding of word usage. Student excels in the selection and development of a well-planned research assignment. Assignment is error-free and reflects student’s ability to write for possible high school newspaper/journal. Research Skill: Student provides sophisticated synthesis of complex body of information in the preparation of assignment. Research provided by student contributes significantly to the development of the overall thesis. Student incorporates at least 8 quality references in assignment with APA 7 format and DOI with each reference on the reference page. Student incorporates a variety of research resources and methodology in the preparation of assignment.

ANSWER

Cost Volume Profit Analysis for Movie Theater Operation

Abstract

Cost Volume Profit (CVP) analysis is a manner in which a company or organization determines how the differences in variable and fixed costs influences its profit margins. Most companies utilize the CVP to find out how the quantity of units that must be sold to reach a certain set minimum profit margin. The CVP is known to have three main components; cost, sales volume and price; the main purpose of a CVP is to highlight how the latter elements affect the profit of an organization. A CVP analysis assumes that costs occur in similar mannerisms over a significant range within a given period; it further denotes that the quantity of units produced equals that of units sold, thus implying no change in the inventory. The CVP concludes that volume is the only variable affecting costs hence the constant nature of the variable cost per unit; selling price does not change thus constant.

Introduction

Movie theater operations involve several activities that must be undertaken to ensure a successful and quality cinema display for the audience. Some of the general basic steps include safety of the audience and actors/actresses, quality, minimal production costs, maximization of profits, designing and the general roles played by each team member of the production crew. A movie theater operation, just like any other business, focusses on maximizing sales with minimum costs. A CVP analysis in a movie theater scenario will help in understanding how the subject business can operate and offer quality services without incurring additional costs, and still be able to achieve the minimum required profit margin set by the business owner(s). The key purpose of this paper is to discuss cost volume profit analysis and its application in a movie theater production process.

A Cost Volume Profit analysis utilizes a certain model which is an abstraction; the model mostly represents mathematically those variables believed to be vital in decision making. In a simple CVP model, profit is achieved by subtracting the total costs from the total revenues used in the production process. Revenues, on the other hand, is achieved by determining the selling price units of the production process; costs are calculated by adding the fixed costs to the unit variable costs, which are all products of the manufactured units (Chibili, 2019). The CVP model assumes that the manufactured quantity equals the units sold over a given period of time. A CVP analysis has several assumptions that are key in determining the required profit margins.

One of the assumptions is that the extent of the inventory at the beginning in manufacturing firms is the same as that at the end of the period, thereby implying that the quantity of units produced at the beginning equals that which is sold over a specified period of time. The total assumption is that manner of the total revenue runs in a straight line thus linear; the price of the service/product when the sales volume varies within a certain significant range. A CVP analysis therefore, group costs as fixed, variable or semi-variable; the total fixed costs remain constant as operation varies as the unit cost remains unchanged (Ihemeje, 2015). The efficiency, production process and workers also remain unchanged.

Taking a case scenario of a movie theater operation, for instance in a school setting whereby, a student body intends to display cinemas in campus. The subject body will then go ahead and rent a specific movie in one day, for instance, USD 1,000. The rent for an auditorium, salaries for ticket issuers (and other employees), and other fixed costs sum up to USD 800. The student body then decides to sell the tickets for USD 4 per viewer; the body also decides to offer soft drinks, candy and popcorns in the show. The total profit amounting from the sale of the above-mentioned goods are approximately to be USD 1 per viewer. From the above case scenario, the student body would expect to sell a minimum of 360 tickets to substantiate the movie rental. Generally, the CVP analysis of the subject production process will require the subject student body to do thorough advertisement at minimum costs to ensure maximum turn up for the movie show, hence realizing the set profit margins (Haugom, 2020).

The managers of a movie theater operation are tasked with the role of separating mixed costs into fixed and variable components, thereby hastening decision-making procedures. Mixed cost involves a constant part of the cost achieved when the facility is not in use with a variable cost which directly rises with volume. Managers and producers in a movie theater operation will use a CVP analysis to determine the factors that affect the variations in selling price, costs and volume, and their effect on profit margins within a given period of time (Hill, 2021). The production team, therefore, needs to acquire knowledge of the expected costs with their fixed or variable characters when the volume fluctuates. One of the ways in which a movie theater manager can calculate and analyze the organization’s CVP is through the CVP chart, which is a graph that depicts the relationships among costs, sales, profit and volume.

The chart allows the management to approximate the organization’s profit or loss at each volume. The contribution margin is described as the amount by which the obtained revenue increases with the variable production cost (Laslie, 2017). The contribution margin will help the movie theater management to determine the amount of revenue left after handling the variable costs. For instance, in a theater production scenario, a contribution margin of USD 48,000 caters for the USD 40, 000 fixed costs, thereby leaving the USD 8,000 as the net income.

In a CVP analysis, determination of the break-even point is very vital. The break-even point is reached in an organization when the sales income and costs incurred are the same over a given period. The subject point is when a company reaches a certain level of operations where there is neither a profit nor loss. The break-even point in dollars is calculated by dividing the fixed costs by the contribution margin ratio. The contribution margin ratio indicates the contribution margin as a percentage of the sales; it is calculated by dividing the contribution margin per unit by the selling price per unit or dividing the sum of the contributions margin by the total revenues.

Conclusion

The Cost Volume Production analysis is a key instrument in many successful businesses used to monitor the success margin of the company over a given period of time. It is therefore important for any business to deploy the utilization of the tool in ensuring the set profit margins are achieved, and also in determining areas that require improvement in order to reach a certain level of profit margin. The management of a movie theater operation should therefore deploy this technique to ensure the production cost does not supersede the total costs incurred in any given production scenario over a set period of time. The CVP analysis stands as a vital tool in evaluating and monitoring the operations of a given business.

References

Article 7 Business Profits. (2019). https://doi.org/10.1787/5d85a110-en

Break-even and contribution margin analysis: Profit, cost, and volume changes. (2015). Budgeting Basics and Beyond, 45–60. https://doi.org/10.1002/9781118106754.ch4

Chibili, M. N. (2019). Cost-volume-profit analysis. Basic Management Accounting for the Hospitality Industry, 237–250. https://doi.org/10.4324/9781003022305-11

Cost volume profit analysis (CVP-analysis). (2020). Management Accounting. https://doi.org/10.24053/9783739880280-134

Haugom, E. (2020). Case study optimal prices of movie theater tickets. Essentials of Pricing Analytics, 128–153. https://doi.org/10.4324/9780429345319-8

Hill, D. D. (2021). Scaasi, Arnold (8 may 1930–3 Aug. 2015), fashion designer, theater and movie costumer. American National Biography Online. https://doi.org/10.1093/anb/9780198606697.013.369471

Ihemeje, J. C. (2015). Cost-volume-profit analysis and decision making in the manufacturing industries of Nigeria. Journal of International Business Research and Marketing, 1(1), 8–16. https://doi.org/10.18775/jibrm.1849-8558.2015.11.3001

Laslie, B. D. (2017). The European Theater of Operations. Architect of Air Power. https://doi.org/10.5810/kentucky/9780813169989.003.0005