The Museum of Art is preparing for its annual appreciation dinner for contributing members. Last year, 500 members attended the dinner.

Tickets for the dinner were $20 per attendee. Last year’s income statement was as follows:

Ticket sales........... $10,000

Cost of dinner........... 11,000

Gross margin........... (1,000)

Invitations and paperwork..... 3,000

Profit (loss)...........$(4,000)

This year the dinner committee does not want to lose money on the dinner. To help achieve its goal, the committee analyzed last year’s costs. Of the $11,000 total cost of the dinner, it was determined that $6,000 were fixed costs and $5,000 were variable costs. Of the $3,000 for invitations and paperwork, $2,500 were fixed and $500 were variable.

REQUIRED

1. Prepare last year’s profit report using the contribution-margin format.

2. The committee is considering expanding this year’s dinner invitation to include volunteer members (in addition to contributing members). If the committee expects attendance to double, calculate the effect this will have on the profitability of the dinner.