Group Project II

12/13/14

BY:

Tim Callahan

Kelly Kuhn

John Mano

Christie Stevens

Managerial Accounting

American Cinema Theatre

• Bob and Trisha Johnson, owners of the American Cinema

Theatre (ACT), have sought out Blue Group Consulting for

recommendations on what their next business step should be.

• They currently own a regular theatre. This theatre shows new

and current movies year round; 80,000 tickets were sold in

their first year of business at $12 a ticket.

• It has been a profitable and safe investment for the Johnsons to

date, however they are looking for change and increased

profitability.

Alternative 1

• Alternative 1 was the consideration of a discount theatre which

would show older, out-of-date movies that the average

consumer most likely has already seen.

• Ticket prices would drop from $12 to $7.

• Ticket sales would increase from 80,000 to 100,000 tickets

sold per year.

Alternative 2

• Alternative 2 is installing digital projection equipment in ACT,

essentially making it a 3D theatre.

• A 3D theatre would provide an experience that will be quite

different than that of a regular or discount theatre.

• Ticket prices would increase from $12 to $17.50.

• Ticket sales stay constant at 80,000 tickets sold per year, same

as the regular theatre.

Location: Menifee, CA.

• Median household income:

• Menifee: $53,941, California average: $58,328

• Median house or condo value:

• Menifee $219,614, California average: $349,400

• New single-family house building permits per 10,000

residents:

• Menifee: 44 permits per 10,000 , California average: 8 permits

per 10,000

Degree of Operating Leverage

• Discount theatre: from 1.78

to 2.06

• Not a good thing in this

case since our revenue is

decreasing making the

theatre more volatile.

• Luxury theatre: from 1.78

to 4.27

• Not a bad thing since our

revenue will be rapidly

increasing.

Ticket Sales

• Examining our ticket sales

by looking at a sample net

income of $170,000.

• To reach that income in our

current situation we would

have to sell 97,500 tickets

and with the discount

theatre 127,273 tickets.

• For the luxury theatre we

would have to sell 92,500

tickets.

• What this means to us.

20% Decline in Sales Effect

• With a 20% decline in

sales, regular net income

would drop to $78,880 and

discount theatre would drop

to $63,920.

• A luxury theatre would

drop to $14,960.

• What this means to us.

20% Increase in Sales: Net Income

• Regular theater: $165,920

• Discount theater: $153,680

• 3D Theater: $189,040

• 3D Theater outperforms

• Discount theater can’t catch

up

Sales Greatly Increase: +900%

• Net Income:

• Regular Theater: $2,080,800

• Discount Theater: $2,128,400

• 3D Theater: $4,018,800

• 3D Theater outperforms all,

outperforms regular by $1,938,000, or 93%

• Discount theater outperforms regular by $47,600, or 2.3%

Sales Greatly Decrease: 50% Decline

• Net Income

• Regular: $13,600

• Discount: (3,400)

• 3D: (115,600)

• 3D and Discount theaters

both suffer losses

• Operating leverage

• Regular = 1.78

• Discount = 2.06, 3D = 4.27

• 3D (after $350,000 fixed costs removed) = 1.28

X-Factor

• Future Sales: 3D

• Fixed costs go back

down to $140,000/yr

3D Theater Equivalent Sales 50% Reduction

Sales $1,400,000.00 $700,000.00

Variable costs $760,000.00 $380,000.00

Contribution margin $640,000.00 $320,000.00

Fixed costs $140,000.00 $140,000.00

Income before taxes $500,000.00 $180,000.00

Income taxes (32% rate) $160,000.00 $57,600.00

Net income $340,000.00 $122,400.00

Typical Moviegoers

• Highest attendance on nights, weekends

• Age groups 25-39 and 18-24 are the most frequent

• Lowest attendance afternoons, weekdays, age 50+, and age

below 11

• Source: www.indiewire.com

Improving Sales

• Make better movies!

• Better theater experience:

• Large, beautiful screen

• Surround sound

• No sticky floors

• Promotions:

• Matinee/afternoon discount, senior/child discount

• Movie theater memberships

MARKETING MARKETING

MARKETING

• Speak to Target Audience

• Create Destination Theater

• Maximize New Release Marketing by Production Houses

• Hire an Outside Marketing Firm to Plan Events

Destination Theatre • Capture their hearts

and they will return.

• Inexpensive marketing

techniques

• Direct Mail $1,500.00 per mailing

• Reach 100,000 homes, 5% of budget

• 1% return on each mailing 1,000 tickets

• Redemption coupons, tracking - Calendar of Events, timing

Timing

• Capitalize on Down Time – with each paid admission

• After School Princess Meet and Greets

second and fourth Tuesday

• Pirate Show at SunDown on first

and third Wednesday

Monday Afternoon Golden Year Films

Conclusion

• Bob and Trisha should decide alternative #2 due to its great

potential for success.

• Sales will remain the same and there will likely be an increase

soon given the status of the market.

• Once initial fixed costs have been paid for and the market

continues to rise, Bob and Trisha will be making a higher net

income then any other option.

Works Cited

• Menifee, CA. City-Data.com, 2014. Internet. December 5, 2015.

• Riffkin, Rebecca. Americans' Consumer Spending Inches Up in November.

Gallup, December 1, 2014. Internet. December 5, 2014.

• Upcoming Movies 2015. Movie Insider, 2014. Internet. December 5, 2014.

• Weekend Box Office: November 28-30, 2014. Box Office Mojo, December

1, 2014. Internet. December 5, 2014.