TJB Productions, Ltd., is promoting a rock concert in London. The bands will receive a flat fee of £7.3 million. The concert will be shown worldwide on closed-circuit television. TJB will collect 100% of the receipts and will return 20% to the individual local closed-circuit theater managers. TJB expects to sell 1.3 million seats at a net average price of £15 each. TJB will also receive £270,000 from the London arena (which has sold out its 19,700 seats, ranging from £175 for box seats to £20 for general admission, for a gross revenue of £1.2 million); TJB will not share the £270,000 with the local promoters.
1. The general manager of TJB Productions is trying to decide what amount to spend for advertising. What is the most TJB could spend and still break even on overall operations, assuming sales of 1.3 million tickets?
2. If TJB desires an operating income of £490,000, how many seats would it have to sell? Assume that the average price is £15 and fixed costs consist of the £7.3 million fee for the bands and £3.7 million for advertising, for total fixed costs of £11 million.