Assignment: Cost Behavior
Purpose of Assignment
The case study focuses on break-even, margin of safety, and incremental analysis and allows students to experience working through a business scenario to apply these tools in managerial decision making. Students are required to make decisions and provide solutions based on their evaluation of financial data.
Resources: Generally Accepted Accounting Principles (GAAP), U.S. Securities and Exchange Committee (SEC)
Tutorial help on Excel® and Word functions can be found on the Microsoft® Office website. There are also additional tutorials via the web offering support for Office products.
Scenario: Shelley Jones has just been elected as president of the Circular Club of Auburn, Kansas, and she has been asked to suggest a new fundraising activity for the club. After a considerable amount of research, Shelley proposed the Circular Club sponsor a professional rodeo. In her presentation to the club, Shelley recommends the fundraiser become an annual activity with the following goals:
• Continue to grow each year
• Give back to the community
• Provide the club a presence in the community
Shelley's goal in the first year is to have an activity that would become an "annual community event" and would break even the first year and raise $5,000 the following year. In addition, based on the experience of other communities, Shelley believed a rodeo could grow in popularity so the club would eventually earn an average of $20,000 annually.
A rodeo committee was formed. Shelley contacted the world's oldest and largest rodeo-sanctioning agency to apply to sponsor a professional rodeo. The sanctioning agency requires a rodeo to consist of the following five events: Bareback Riding, Bronco Riding, Steer Wrestling, Bull Riding, and Calf Roping, Team Roping and Women's Barrels. Prize money in the amount of $3,000 would be paid to winners in each of the seven events. Members of the rodeo committee contracted with RJ Cattle Company, a livestock contractor on the rodeo circuit, to provide bucking stock, fencing, and chutes. Realizing costs associated with the rodeo were tremendous and ticket sales would probably not be sufficient to cover the costs, the rodeo committee sent letters to local businesses soliciting contributions in exchange for various sponsorships. Exhibiting Sponsorships are $1,000 to exhibit products or services, while Major Sponsorships are $600, and Chute Sponsorships are $500 to have the name of the sponsor's business on one of the six bucking chutes. For a contribution of $100, individual sponsors will be included in a Friends of Rodeo list found in the rodeo programs.
A local youth group will be contacted to provide concessions to the public and divide the profits with the Circular Club. The Auburn Circular Club Pro Rodeo Roundup will be held on June 1, 2, and 3. The cost of an adult ticket is set at $8 in advance or $10 at the gate; the cost of a ticket for a child 12 or younger is set at $6 in advance or $8 at the gate. Tickets are not date-specific. Rather, one ticket will admit an individual to one performance of his or her choice-- Friday, Saturday, or Sunday. The rodeo committee is able to secure a location through the county supervisors' board at a nominal cost to the Circular Club. The arrangement allows for the use of the county fair grounds and arena for a one-week period. Several months prior to the rodeo, members of the rodeo committee were notified the bleachers at the arena would hold 2,500 patrons. On Saturday night, paid attendance was 1,663, but all seats were filled due to poor gate controls. Attendance was 898 Friday and 769 on Sunday.
The following revenue and expense figures relate to the first year of the rodeo:
Receipts:
Contributions from sponsors: $22,000
Receipts from ticket sales: $28,971
Share of concession profits : $1,513
Sale of programs: $600
Total receipts: $53,084
Expenses:
Livestock contractor: $26,000
Prize money: $21,000
Contestant hospitality: $3,341*
Sponsor signs for arena: $1,900
Insurance: $1,800
Ticket printing: $1,050
Sanctioning fees: $925
Entertainment: $859
Judging fees: $750
Port-a-potties: $716
Rent: $600
Hay for horses: $538
Programs: $500
Western hats to first 500 children: $450
Hotel rooms for stock contractor: $325
Utilities: $300
Sand for arena: $251
Miscellaneous fixed costs: $105
Total expenses: $61,410
Net loss: $(8,326)
*The club contracted with a local caterer to provide a tent and food for the contestants. The cost of the food was contingent on the number of contestants each evening. Information concerning the number of contestants and the costs incurred are as follows:
Contestants Total Cost
Friday 68 $998
Saturday 96 $1,243
Sunday 83 $1,100
$3,341
On Wednesday after the rodeo, members of the rodeo committee met to discuss and critique the rodeo. Jonathan Edmunds, CPA and President of the Circular Club, commented that the club did not lose money. Rather, Jonathan said, "The club made an investment in the rodeo." The rodeo committee has requested an analysis of the rodeos performance and evaluation of the CPA's review.
Create a minimum 500-700 word essay, as the committee's consultation team and respond to the following:
• Shelley has just learned you are calculating the break-even point in dollars of ticket sales. She is still convinced the Club can make a profit using the assumptions above (second bullet point above).
• Calculate the dollars of ticket sales needed to earn a target profit of $6,000.
• Calculate the dollars of ticket sales needed to earn a target profit of $12,000.
• Rather than hire the local catering company to cater the Contestant Hospitality Tent, members of the Circular Club are considering asking Shady's Bar-B-Q to cater the event in exchange for a $600 Major Sponsor spot. In addition, The Fun Shop, a local party supply business, will be asked to donate a tent to use for the event. The Fun Shop will also be given a $600 Major Sponsor spot. Several members of the Club are opposed to this consideration, arguing that the two Major Sponsor spots will take away from the money to be earned through other sponsors. Adrian Stein has explained to the members the Major Sponsor signs for the arena cost only $48 each. In addition, there is more than enough room to display two additional sponsor signs. What would you encourage the Club to do concerning the Contestant Hospitality Tent? Would your answer be different if the arena were limited in the number of additional signs that could be displayed? What kind of cost would you consider in this situation that would not be found on a financial statement?
Show your work in Microsoft Word or Excel.
Complete calculations/computations using Microsoft Word or Excel.
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
3. Also include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.