Ryan James runs a photographic studio. Clients book studio sessions and are entitled to receive two large photographs of their choice from the sitting. The following costs and selling price are associated with the business.
• Ryan rents the studio for $1,500,000 per annum.
• He employs two full time photographers; each paid a salary of $2,200,000 per annum
• He employees one photographic technician for one day per week. Who is paid $12,500 per day or $650,000 per annum
• Advertising costs are $100,000 per annum
• Electricity costs are $115,000 per annum plus $400 per client hour. Each sitting takes two hours.
• Ryan acts as the receptionist and is paid $1,500,000 per annum.
• Fixtures, fittings, and equipment originally cost $1,260,000 and will depreciate by $248,000 per annum.
• Ryan expects to have 1,300 sittings per year; each charged at $8,000.
The following is required for Ryan James photographic studio:
a) Identify and calculate the fixed costs of the business [4 marks]
b) Determine the contribution per client [2 mark]
c) Calculate the break-even point [3 marks]
d) Interpret the break-even point [3 mark]
e) Calculate the percentage margin of safety [2 marks]
f) Interpret the percentage margin of safety [2 mark]
g) Calculate the unit cost if there are 1800 customers [1 mark]
h) Determine the unit cost if there are 1200 customers [1 mark]
i) Explain why the unit costs are different [2 mark]
