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C.A.'s comments on student exemplars Movie Project Relevance of analyzing the flow of people Off the top of this project, the students analyzed the flow of people, this is a very interesting area of marketing research to see how people react to products, how they react to different things. It is better on the outside of what we look at as accountants research some of the time. However, I wasn't sure at the end of the day how this really mattered on a quantitative level in terms of supporting or refuting any kind of profitability of being open on Sundays. What was the relevance of analyzing the flow of people to an analysis of the profitability of opening a theatre on Sunday? Classifying the fixed costs and variable costs in order to look at the gross profit margin and net profit margin The possible costs of the inputs, as identified, would be useful in analyzing costs; some of these are variable costs. On the other hand there are also the fixed costs that do not vary with number of people visiting the theatre. What is useful for determining profitability, which is what this analysis is supposed to be about, is looking at the Gross Margin. Gross margin is defined - loosely - "as the percentage of income remaining after deducting operating costs". So, for example, if my revenue was a hundred dollars, and my costs for materials--called costs of it sold--was forty dollars, I have sixty dollars left over, which translates into a 60% gross profit margin. The calculation of gross profit margin is useful for studying or looking at profitability of a business. After you get past your profit margin, you look at other factors like the fixed costs; depreciation of the building; electricity--which you can't allocate out really area by area--and all these costs reduce your gross profit margin down to a net profit margin. You just can't calculate the profitability of a business on a simple basis as was done in this case. Looking at areas that have a positive gross margin, the main areas where I do business: It is certainly useful for the theatre to consider the arcade results--the highest or lowest money makers--to know what to keep around or what to do, what to get rid of and so forth. In terms of C.A. work this is about "how you could run the business better." In this exercise what might have been useful is to say, "Alright, I have three main areas where I do business, where I have revenue generated or profit generated as a theater owner: I have revenue from tickets; I have revenue that comes from concession; I have revenue, letıs just say, from the arcade". The main areas where I do business are the areas which have a positive gross margin. Looking at the analysis from a broad persective It is always helpful to look at an analysis from a broad perspective, looking at a whole industry or a whole economy, then going down to the industry through the company, to other smaller units. Something from a general perspective would have been a useful way to approach this question: Is it worthwhile keeping it open on Saturday? What do I have to consider? In some parts of the country it may be a taboo to have social engagements on Sundays . What are the competitors doing? Are they open on Sundays? Are they offering price reductions to get more people And what are the responses of the company accordingly? Other possible projects for a a break even analysis The proposed projects like: what overall profit does the theatre receive from its arcade games monthly? how many customers would they need to average on Friday night in order to make a profit?" deal with a break-even analysis in business. Another possible project would be to look at "What number of people do I have to have walk through my door for my costs to break even?" Looking at it, youıre probably not going to break even on Sunday night. Did they do a hard-nosed analysis at the end of the day? Was there a real structure for determining profitability in this project? The entrance fees were noted and graphed for showing or bringing everything together. The tabulated presentation or basic view on everything was helpful in this case. However, what this project did is to find: "What are the revenues? What are the costs?" Did they do a hard-nosed analysis at the end of the day? Not really. They came to some conclusions about what things did make money, what things didn't make money. There wasn't a say on the whole series of financial considerations that were involved. There wasn't a real structure to say, "At the end of the day, am I making money or not? Did all of my revenues from the entrance fees, the concession, etc., exceed the costs from the cost of renting, or of having a film on stage and having licenses for that, the cost of the food and the concession, and the cost of staff".
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