Managerial Accounting Decision Making Assignment Homework Help Online
- July 27, 2017
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- Category: Accounting QA
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David Jones is planning a new business venture business called “Stardust Singers”. Jones is lead singer of a music group that intends to sing at weddings, birthdays, and other social functions as requested. The constant member of the group is Jones as the lead singer but he usually sings with regular backup instrumentalists/singers drawn from his circle of musician friends. The most regular backing guitarist is his close friend Zoe Zig.
Prior to opening the business he is doing some analysis of his expected costs for a ‘gig’.
The average gig is expected to have a two hour duration. Sessional backing singers/vocalists are paid $30 per hour and, including David Jones, the band size is usually four people, and each bring their own instruments as necessary. As these sessional musicians are self-employed contractors there are no additional employment costs. David Jones would have to lease some better quality sound equipment at a cost of $720 per month. David Jones would organise travel to the gig via minibus at an expected cost for the band of $40 per gig. Additionally refreshments for the band per gig amount to $15 for each band member (including Jones). There is also a budget for costumes for Jones of $30 per gig. Insurance costs are $480 per annum. Jones expects to charge $500 per gig and current demand is 10 gigs per month.
Jones will need to give up his current part time job in order to start this business, and he requires the monthly profit to be at least equal to his previous salary of $1,500 per month.
Note: All of these costs are excluding GST and you do not need to consider GST in your calculations for this section.
Required:
1. David Jones is considering two possible business ownership types – a sole trader or a partnership with Zoe Zig. Advise Jones of the comparative advantages and disadvantages of the two ownership structures being considered.
2. Calculate the contribution margin per gig.
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3. Calculate the monthly fixed costs.
4. Calculate the number of gigs per month needed to break even (round up to nearest gig if required).
5. Calculate the number of gigs required per month to attain a target profit equal to Jones’ previous monthly salary. Will the expected number of gigs be sufficient to achieve this?
6. Alternatively Jones could charge $600 per gig, but he expects that demand will drop to eight gigs per month. Advise him whether this is worth doing or not.
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