How does outfitting AMC movie theaters with recliners affect the company’s breakeven point and operating leverage? Original blog posting (July 18, 2014)

AMC Entertainment Holdings Inc. Spending millions of dollars to install recliner-seating in its theaters Will reduce seating capacity by up to 2/3 Ticket sales increase by up to 80% Will raise ticket prices by $1 to $2 after a year

Question 1 How would the costs of the recliners and installation within a given theater affect that theater’s break even point? Explain.

Question 2 Would the 80% increase in ticket sales in a recliner-outfitted theater affect the theater’s break even point? Explain why or why not.

Question 3 How would the $1 to $2 increase in the price of a movie theater ticket after a year impact break even? Explain.

Question 4 How does the installation of these recliners impact the company’s operating leverage? Does the company have more or less risk with the new cost structure? Explain.

Question Recap How would the costs of the recliners and installation within a given theater affect that theater’s break even point? Explain. Would the 80% increase in ticket sales in a recliner-outfitted theater affect the theater’s break even point? Explain why or why not. How would the $1 to $2 increase in the price of a movie theater ticket after a year impact break even? Explain. How does the installation of these recliners impact the company’s operating leverage? Does the company have more or less risk with the new cost structure? Explain.

For additional news stories to use in the accounting classroom, see the Accounting in the Headlines blog at http://accountingintheheadlines.com/ Related video resources can be found at http://www.youtube.com/user/accountingheadlines Questions or comments? Contact Dr. Wendy Tietz at wtietz@kent.edu