(-RIA) 02- Cost Behavicx, Opersting Leverage, and Protability Demonstration Problems for Chapter 2 Demonstration Problem 2-1 Applying Cost Behavior Concepts to Business Decisions Artisan's Arch, Inc. (AAI) contracts with artists to exhibit their work to the public. AAI has agreed to pay a well known artist a $20,000 commission for the right to exhibit his work for one month. Required Part a - Identifying Cost Behavior I. Determine the total commission cost and the commission cost per person if 1,000, 2.000, or 4,000 people attend the exhibition. Is the commission cost fixed or variable? 2. AAI sells to patrons books illustrating the artist's work The books cost Determine the total cost of books and the cost per person if 1,000, 2,000, or 4,000 people attend the exhibition and wish to purchase the books. Is the book cost fixed or variable? Part b- Operating Leverage and Risk/Reward Relationship I. AAI pays an artist a $20,000 commission. It sells 4,000 tickets at $6 each. Prepare an income statement. Then prepare revised income statements assuming 10 more than 4,000 and 10 percent fewer than 4,000 patrons attend the exhibition. Calculate the percentage changes in revenue and net income if attendance increases or decreases 10 percent. 2. Alternatively, AAI pays the artist a commission of $5 per ticket sold. It sells 4,000 tickets at $6 each. Prepare an income statement. Then prepare revised income statements assuming 10 percent more than 4,000 and 10 percent fewer than 4,000 patrons attend the exhibition. Calculate the percentage change in revenue and net income if attendance increases or decreases 10 percent. Part c- Fixed and Variable Cost Definitions are Context Sensitive 1. AAI pays the artist a commission of $20,000 per exhibition. What is the total commission cost and the commission cost per person if 1,000, 2,000, or 4,000 people attend the exhibition? (Same as part a.1.) 2. AAI pays the artist a commission of $20,000 per exhibition. What is the total commission cost and the commission cost per exhibition if AAI sponsors 1, 2, or 3 exhibitions