Forest Gump – Accountant 1. Was Forrest Gump an “accounting” hit in terms of net income, as computer by Paramount? The way Paramount prepared the statements, NO Forrest Gump was not a hit as they reported a loss of $62 million. Did Paramount make money on the film, I believe they did and you will see that in my answer to question 3. Internally I am quite confident that Paramount feels Forrest Gump was a success but the statements prepared for external users do not show that. 2.
How much in gross box office receipts will the studio have to receive from theaters before Groom and Roth receive any money under their net profit participation contract, as computed by Paramount? They will not receive any funds until the Break Even Point (BEP) is reached, but as seen in this statement with fixed costs of adverting and promotion, Paramount can decide to increase that at any time so will a BEP ever really be reached? Using the data presented however, the BEP is $453. 4 million. Here’s how this was calculated:Order now
Fixed Costs: Production 76. 8 (66. 8 + 15%) Promo/Dist/Advert 73. 9 (67. 2 + 6. 7) Variable Costs: Participation 18. 4 % (16% of Gross Studio + 15%) Distribution fee32% of Gross Studio 50. 4% Figures not needed Financing costs – there won’t be any if there is no loss Break Even Point (BEP) = (76. 8 + 73. 9) + 50. 4% BEP = $226. 7 Gross Studio or $453. 4 Box office Gross 3. If you were Groom’s accountant, what is your estimate of the amount of box office revenue required before Forrest Bump actually earns a profit for Paramount?
If I were preparing the statement, there are a few things I would change. On the negative costs section, I would allocate studio overhead as 15% of production costs not all direct costs as gross profit participation are not only variable but happen after the movie has been produced. I’m not sure why advertising is not considered promotion but as I don’t understand I will leave it alone and include both items. Distribution is also listed in two line items but I will also leave that alone.
Other changes I would make to the statement are to eliminate the second distribution costs: given that the distribution is a fee for Paramount to distribute the film and is paid to Paramount they are simply robbing Paul to pay Peter and therefore it does not belong in the statement to figure Groom’s commission. The financing fee will be removed for the simple reason that the film will show a profit and there is no reason to borrow funds on the no longer loss. So my statement looks like this: Box office gross revenues:382 50% movie theaters retained:191 Paramount’s Gross Revenues:191
Direct Costs: Production66. 8 Gross Profit (16%)30. 6 St Overhead(15%)10 Total107. 4 Negative Costs Promo/Distr67. 2 Advert6. 7 Total74 Total Costs(181. 4) Profit (loss) $9. 6 Million Groom would then get $288,000 (3%) If we could learn more and remove advertising (because the expense is included in marketing) the profit is then $16. 3M, Groom would then receive $489,000. Going further and figuring out how much on the first cost line of promotion and distribution is distribution that Paramount really pays themselves, Groom would be eligible for even more funds.