The Western North Carolina Playhouse.

Little, Philip L. ; Little, Beverly L.

CASE DESCRIPTION

The primary subject matter of this case concerns managerial accounting cost behavior concepts. The case has a difficulty level of five, appropriate for first year graduate students. The case is designed to be taught in 3 class hours and is expected to required 5-6 hours of outside preparation by students.

CASE SYNOPSIS

This case requires students to apply managerial accounting concepts beyond the traditional manufacturing/production problems, by having them make recommendations to a regional playhouse as to how many plays to produce (evening v. matinee), how much to spend on those plays, and how to raise outside funds for renovation.

INSTRUCTORS' NOTES

The WNCP Board has asked your consulting firm to assist them in preparing the three- year planning report, 2005-2007. The Board has suggested the following format for the report:

Executive Summary

Western North Carolina Playhouse Executive Summary

The Have Briefcase Will Travel (HBWT) Consulting Group was engaged to prepare reports for the Western North Carolina Playhouse (WNCP) to aid the organization in deciding on the best schedule of performances for the three years 2005-2007 that will provide the maximum cash flows from ticket sales and help the organization to determine how much money they need to raise from outside contributors. HBWT used data provided by WNCP to prepare the reports and perform the necessary analyses.

HBWT performed a cost/volume/profit analysis to determine the best mix of performances to ensure the maximum cash flows to the WNCP. Also, data are provided from the cost/volume/profit analysis that shows how many performances are necessary in order to cover the direct fixed cost of each play. A cash flow budget for the 2005-2007 planning period was developed from the mix of performances indicated by the cost/volume/profit analysis. The cash flow budgets for each year in the planning period indicate how much money WNCP will need to obtain from outside contributors.

Recommendations were developed to inform the company of the best schedule of performances for the 2005-2007 planning period as well as requirements for outside contributions. Also, additional recommendations were developed regarding special issues. All of the recommendations were developed using estimates of attendance and costs that are uncertain. HBWT makes no assurances about the quality of the estimates. Accordingly, actual results may vary from expectations.

Cost/Volume/Profit Analysis

1. Spreadsheet showing revenues, variable costs, and contribution margin per evening and potential matinee performance for each play

Solution: Cost/Volume/Profit #1

Play Rev/Perf Top Oth
 Act/Perf Act/Perf

Bay at the Moon 19950 9000 300
Beat 19950 6000 0
Beautiful Woman 19950 9000 200
Bill of Rights 19950 9000 0
Admissions 19950 9000 500
The Bill Show 19950 9000 600
The Box 17900 6000 500
The Brightest Light 17900 6000 1800
Cairo 17900 6000 900
Captain 11 17900 6000 1000
Cat and Mouse 17900 6000 200
Chitterling Heights 17900 6000 600
Christmasless 17900 6000 400
Circumference 17900 6000 0
Counsellor Adams 17900 6000 700
Hate Mail 16450 3000 700
Hell to Pay 16450 3000 600
The Hidden Place 16450 3000 400
A Hole in the Dark 16450 3000 900
A House of Cards 16450 3000 300
Dreaming of Norton 16450 3000 500
Eastwest 16450 3000 100
Eighteen 16450 3000 1500
Evergreen 16450 3000 800
Heights 14850 1500 800
The Coyote Bleeds 14850 1500 300
Cupid & Psyche 14850 1500 100
Dangerous 14850 1500 900
Debt 14850 1500 500
The Desk 14850 1500 700

Play Oth VC Per CM/Perf
 VC/Perf Perf

Bay at the Moon 320 9620 10330
Beat 320 6320 13630
Beautiful Woman 320 9520 10430
Bill of Rights 320 9320 10630
Admissions 320 9820 10130
The Bill Show 320 9920 10030
The Box 280 6780 11120
The Brightest Light 280 8080 9820
Cairo 280 7180 10720
Captain 11 280 7280 10620
Cat and Mouse 280 6480 11420
Chitterling Heights 280 6880 11020
Christmasless 280 6680 11220
Circumference 280 6280 11620
Counsellor Adams 280 6980 10920
Hate Mail 210 3910 12540
Hell to Pay 210 3810 12640
The Hidden Place 210 3610 12840
A Hole in the Dark 210 4110 12340
A House of Cards 210 3510 12940
Dreaming of Norton 210 3710 12740
Eastwest 210 3310 13140
Eighteen 210 4710 11740
Evergreen 210 4010 12440
Heights 140 2440 12410
The Coyote Bleeds 140 1940 12910
Cupid & Psyche 140 1740 13110
Dangerous 140 2540 12310
Debt 140 2140 12710
The Desk 140 2340 12510

Play Mat Rev/Perf CM/Mat

Bay at the Moon 7600 -2020
Beat 7600 1280
Beautiful Woman 7600 -1920
Bill of Rights 7600 -1720
Admissions 7600 -2220
The Bill Show 7600 -2320
The Box 6850 70
The Brightest Light 6850 -1230
Cairo 6850 -330
Captain 11 6850 -430
Cat and Mouse 6850 370
Chitterling Heights 6850 -30
Christmasless 6850 170
Circumference 6850 570
Counsellor Adams 6850 -130
Hate Mail 6300 2390
Hell to Pay 6300 2490
The Hidden Place 6300 2690
A Hole in the Dark 6300 2190
A House of Cards 6300 2790
Dreaming of Norton 6300 2590
Eastwest 6300 2990
Eighteen 6300 1590
Evergreen 6300 2290
Heights 5713 3273
The Coyote Bleeds 5713 3773
Cupid & Psyche 5713 3973
Dangerous 5713 3173
Debt 5713 3573
The Desk 5713 3373

2. Recommended schedule of plays per year that will maximize cash flows and satisfy constraints established by the WNCP Board

Solution: Cost/Volume/Profit #1 (supporting schedule)

Section Evening Matinee
 Tickets Tickets

AAA 40 35
AAA 30 25
AAA 20 15
B 10 5
Play Category AAA AA A B
 Cat 1 0.95 0.95 0.95 0.95
 Cat 2 0.9 0.85 0.85 0.8
 Cat 3 0.85 0.8 0.75 0.75
 Cat 4 0.8 0.75 0.65 0.65
Number of Seats 100 200 400 300

 Cat 1 Cat2 Cat 3 Cat 4

Revenue Per Perform 19950 17900 16450 14850
Matinee 7600 6850 6300 5713
Number Top Actors 3 2 1 1
Salary 3000 3000 3000 1500
Top Actor Salary 9000 6000 3000 1500
Supporting 100 100 100 100
Rights 120 80 60 40
Orchestra 200 200 150 100
Total VC/Perf 9420 6380 3310 1740

3. Number of performances of each play required to cover the play's direct fixed costs.

Solution: Cost/Volume/Profit #3

Play Category Year # Perf

Beat 1 1 20
Eastwest 3 1 20
The Coyote Bleeds 4 1 20
A Hole in the Dark 3 1 20
Dangerous 4 1 20
Eighteen 3 1 20
Circumference 2 1 15
Captain 11 2 1 5
The Bill Show 1 1 5
The Brightest Light 2 1 5
A House of Cards 3 2 20
Dreaming of Norton 3 2 20
Debt 4 2 20
Evergreen 3 2 20
Heights 4 2 20
Cat and Mouse 2 2 20
Counsellor Adams 2 2 15
Bill of Rights 1 2 5
Cairo 2 2 5
Admissions 1 2 5
Cupid & Psyche 4 3 20
The Hidden Place 3 3 20
Hell to Pay 3 3 20
Hate Mail 3 3 20
The Desk 4 3 20
Christmasless 2 3 20
The Box 2 3 15
Chitterling Heights 2 3 5
Beautiful Woman 1 3 5
Bay at the Moon 1 3 5

4. Amount of money that must be raised from outside contributors to cover the projected deficits for each year.

Solution: Cost/Volume/Profit #4

Play CM/Perf DFC # Perform

Beat 14628 500000 34
Eastwest 13963 200000 14
The Coyote Bleeds 13653 100000 7
A Hole in the Dark 13163 200000 15
Dangerous 13053 100000 8
Eighteen 12563 200000 16
Circumference 12515 300000 24
Captain 11 11515 300000 26
The Bill Show 11028 500000 45
The Brightest Light 10715 300000 28
A House of Cards 13763 200000 15
Dreaming of Norton 13563 200000 15
Debt 13453 100000 7
Evergreen 13263 200000 15
Heights 13153 100000 8
Cat and Mouse 12315 300000 24
Counselor Adams 11815 300000 25
Bill of Rights 11628 500000 43
Cairo 11615 300000 26
Admissions 11128 500000 45
Cupid & Psyche 13853 100000 7
The Hidden Place 13663 200000 15
Hell to Pay 13463 200000 15
Hate Mail 13363 200000 15
The Desk 13253 100000 8
Christmasless 12115 300000 25
The Box 12015 300000 25
Chitterling Heights 11915 300000 25
Beautiful Woman 11428 500000 44
Bay at the Moon 11328 500000 44

5. A Year by Year Cash Flow Budget (include outside contributions from individuals and corporate sponsors)

Solution: Cash Flow Budgets

Cash Flow Budget: 2005

Play Category Year # Perf

Beat 1 1 20
Eastwest 3 1 20
The Coyote Bleeds 4 1 20
A Hole in the Dark 3 1 20
Dangerous 4 1 20
Eighteen 3 1 20
Circumference 2 1 15
Captain 11 2 1 5
The Bill Show 1 1 5
The Brightest Light 2 1 5
Total
Other Fixed Costs
Debt Service Principal
Debt Service Interest
2005 Deficit

Outside Contributors:

Individuals
Corporate Sponsors
Remaing Deficit

Play Total CM DFC Net CM

Beat 325750 500000 -174250
Eastwest 345350 200000 145350
The Coyote Bleeds 354223 100000 254223
A Hole in the Dark 313350 200000 113350
Dangerous 330223 100000 230223
Eighteen 289350 200000 89350
Circumference 201413 300000 -98588
Captain 11 57138 300000 -242863
The Bill Show 55138 500000 -444863
The Brightest Light 53575 300000 -246425
Total 2325510 2700000 -374493
Other Fixed Costs 600000
Debt Service Principal 500000
Debt Service Interest 60000
2005 Deficit -1534493

Outside Contributors:

Individuals 610000
Corporate Sponsors 400000
Remaing Deficit -524493

Solution: Cash Flow Budgets

Cash Flow Budget: 2006

Play Category Year # Perf

A House of Cards 3 2 20
Dreaming of Norton 3 2 20
Debt 4 2 20
Evergreen 3 2 20
Heights 4 2 20
Cat and Mouse 2 2 20
Counsellor Adams 2 2 15
Bill of Rights 1 2 5
Cairo 2 2 5
Admissions 1 2 5
Total
Other Fixed Costs
Debt Service Principal
Debt Service Interest
2006 Deficit

Outside Contributors:
Individuals
Corporate Sponsors
Remaing Deficit

Play Total CM DFC Net CM

A House of Cards 337350 200000 137350
Dreaming of Norton 329350 200000 129350
Debt 346223 100000 246223
Evergreen 317350 200000 117350
Heights 334223 100000 234223
Cat and Mouse 260550 300000 -39450
Counsellor Adams 180413 300000 -119588
Bill of Rights 58138 500000 -441863
Cairo 58138 300000 -241863
Admissions 55638 500000 -444363
Total 2277373 2700000 -422631
Other Fixed Costs 600000
Debt Service Principal 500000
Debt Service Interest 210000
2006 Deficit -1732631

Outside Contributors:
Individuals 610000
Corporate Sponsors 400000
Remaing Deficit -722631

Solution: Cash Flow Budgets

Cash Flow Budget: 2007

Play Category Year # Perf

Cupid & Psyche 4 3 20
The Hidden Place 3 3 20
Hell to Pay 3 3 20
Hate Mail 3 3 20
The Desk 4 3 20
Christmasless 2 3 20
The Box 2 3 15
Chitterling Heights 2 3 5
Beautiful Woman 1 3 5
Bay at the Moon 1 3 5
Total
Other Fixed Costs
Debt Service Principal
Debt Service Interest
2007 Deficit

Outside Contributors:
Individuals
Corporate Sponsors
Remaing Deficit

Play Total CM DFC Net CM

Cupid & Psyche 362223 100000 262223
The Hidden Place 333350 200000 133350
Hell to Pay 325350 200000 125350
Hate Mail 321350 200000 121350
The Desk 338223 100000 238223
Christmasless 252550 300000 -47450
The Box 186413 300000 -113588
Chitterling Heights 61138 300000 -238863
Beautiful Woman 57138 500000 -442863
Bay at the Moon 56638 500000 -443363
Total 2294373 2700000 -405631
Other Fixed Costs 600000
Debt Service Principal 500000
Debt Service Interest 240000
2007 Deficit -1745631

Outside Contributors:
Individuals 610000
Corporate Sponsors 400000
Remaing Deficit -735631

Summary of Recommendations

Special Issues

1. How would the recommendations change if, in a worst case scenario, the forecasted attendance was 80% of the original forecast?

2. What if the top name actors are paid one-fourth of the stated salaries plus 1% of the proceeds from ticket sales? Would this be a better deal for the WNCP? The actors? Support conclusions with detailed analyses.

3. What means of raising outside contributions could the playhouse pursue? Develop a detailed plan.

Solution: Special Issues--Renovation Contributions

The raising of contributions beyond box office is crucial to the servicing of the debt for the renovation of the playhouse. However, the renovation also provides a unique opportunity for such contributions. For the renovation, means of raising contributions include:

 Special one-time corporate sponsorships of the renovation by
 corporations, interested businesses and historical preservation
 societies.

 During the renovation, specific fund-raising events could be
 promoted. Seats, rows of seats, the stage, the curtain, paving
 stones, etc. could be offered for sponsorship by donors, corporate
 or individual.

On an on-going basis, previous and new sponsors can be sought. Opportunities for such sponsorship include:

 Corporate sponsorship of the playhouse itself, at different levels.
 These sponsorships are recognized in the playbills every
 performance. This could be promoted as powerful advertising to
 particular clientele for businesses.

 Corporate sponsorship of particular plays. These sponsorships are
 prominently displayed, perhaps even on the cover of the playbill, on
 the tickets and in the lobby.

 Matching gifts from corporate sponsors, whereby employees' or local
 citizens' gifts are matched. This is similar to Public Television's
 matching donor program. Again, these are marketed as powerful
 advertising to particular groups.

 Individual donors could be offered special event such as Preview
 Performances, Pre- and Post-season Galas, Dark Night performances.
 These might also include tickets to some number of events.

 Capital or Endowment gifts. The gift that keeps on giving.

Philip L. Little, Western Carolina University

Beverly L. Little, Western Carolina University