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City Art Museum ("City") is considering hosting a travelling exhibit of paintings by a famous artist,...

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Accounting

City Art Museum ("City") is considering hosting a travellingexhibit of paintings by a famous artist, sponsored by theSmithsonian Institution. The Smithsonian charges $300,000 for aone-month exhibit, which covers all costs of insurance andtransportation. They will also receive 15% of gross ticket salesfrom the exhibit. City will incur costs of $75,000 to modifyexhibit space for these paintings; the modifications would have novalue afterward. Additional staff for ticket sales and securitywill cost $43,000. City will pay $55,000 to advertise the exhibit.It is expected that 14,000 visitors will purchase the exhibitticket for $50, which would include access to the entire museum. Ofthese, it is estimated that 11,000 would otherwise not haveattended the museum, while 3,000 would have purchased a regularadmission ticket for $30 even without the special exhibit. It isestimated the increase in visitors will result in additional salesof $230,000 for the gift shop, and $80,000 for the coffee shop.Additional staffing for these units will cost $22,000. The giftshop normally has gross margin of 40%, and the coffee shop,65%.

Determine the incremental profit or loss to City Art Museum ofhosting the travelling exhibit.

Answer & Explanation Solved by verified expert
3.9 Ratings (632 Votes)
AnswerCity ArtMuseumCharges paid to the Smithsonian 300000 for a onemonthexhibit Hence 300000 is incremental costThe Smithsonian will receive 15 of gross ticket sales from theexhibit 14000 50 15 105000    See Answer
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