The local authority of a small town maintains a theatre and arts centre for the use of a local repertory company , other visiting groups and exhibitions .Management decisions are taken by a committee that meets regularly to review the financial statements and to plan the use of the facilities.
The theatre employs a full time non performing staff and a number of artistes at total costs of 9600 pounds and 35200 pounds a month respectively. The theatre mounts a new production every month for 20 performances .other monthly costs of the theatre are as follows:
Heat and light 10300
A share of the administration costs
of local authority 16000
casual staff 3500
on average the theatre is half full for the performances of the repertory company. The capacity and seat prices in the theatre are:
200 seats at 24 pounds each
500 seats at 16 pounds each
300 seats at 12 pounds each
In addition the theatre sells refreshments during the performances for 7760 pounds a month programme sales cover their costs and advertising in the programme generates 6720 pounds a monthy.
The management committee has been approached by a popular touring group which would like to take over the theatre for one month (25 performances). The group is prepared to pay the local authority half of its ticket income as a fee for the use of the theatre.The group expects to fill the theatre for 10 nights and achieve two thirds capacity on the remaining 15 nights. The prices charged are2 pounds less than normally applies in the theatre.
The local authority will as normal pay for the heat and light costs and will still honour the contracts of all artistes and pay the non performing employees who will sell refreshments , programmes and so on. The committee does not expect any change in the level of refreshments or programme sales if they agree to this booking.
Note: The committee includes the share of the local authority administration costs when making profit calculations. It assumes occupancy applies equally across all seat prices.
(a.) On financial grounds should the management committee agree to the approach from the touring group? Support your answer with appropriate workings.
(b.)what other factors may have a bearing on the decision by the committee