Forrest Gump Case Study

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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:

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
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...
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