ACC 561 WEEK 5 Cost Behavior Analysis
ACC 561 WEEK 5 Cost Behavior
Analysis
ACC 561 WEEK 5 Cost Behavior
Analysis
ACC
561 WEEK 5 Cost Behavior Analysis
ACC 561
WEEK 5 Cost Behavior Analysis
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.
Assignment
Steps
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 10-slide
presentation, including detailed speaker notes, as the committee’s consultation
team and respond to the following:
- What did Jonathan Edmunds mean when he said the club had made
an investment in the rodeo? Is his comment consistent with Shelley’s idea
that the club should have a fundraiser that would:
·
Continue to get better each
year.
·
Give back to the community.
·
Provide the club a presence in
the community? Why or why not?
- Shelley, Jonathan, and Adrian Stein, the Fundraising
Chairperson, are beginning to make plans for next year’s rodeo. Shelley
believes by negotiating with local feed stores, inn- keepers, and other
business owners, costs can be cut dramatically. Jonathan agrees. After
carefully analyzing costs, Jonathan has estimated the fixed expenses can
be pared to approximately $51,000. In addition, Jonathan estimates
variable costs are 4% of total gross receipts. After talking with business
owners who attended the rodeo, Adrian is confident the funds solicited
from sponsors will increase. Adrian is comfortable in budgeting revenue
from sponsors at $25,600. The local youth group is unwilling to provide
concessions to the audience unless they receive all of the profits. Not
having the personnel to staff the concession booth, members of the
Circular Club reluctantly agree to let the youth group have 100% of the
profits from the concessions. In addition, members of the rodeo committee,
recognizing the net income from programs was only $100, decide not to sell
rodeo programs next year.
·
Compute the break-even point in
dollars of ticket sales assuming Adrian and Jonathan are correct in their
assumptions.
- 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.
- Are the facilities at the fairgrounds adequate to handle
crowds needed to generate ticket revenues calculated above (third bullet
point above) to earn a $6,000 profit? Show calculations to support your
answers.
- A few members in the Circular Club do not want to continue
with the annual rodeo. However, Shelley is insistent the Club must
continue to conduct the rodeo as an annual fundraiser. Shelley argues she
has spent hundreds of dollars on western boots, hats, and other items of
clothing to wear to the rodeo. Are the expenses related to Shelley’s
purchases of rodeo clothing relevant costs? Why or why not?
- 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?
- Assume you are elected chair of the rodeo committee for next
year. What steps would you suggest the committee take to make the rodeo
profitable?
Show your work in Microsoft® Word or Excel®.
Complete calculations/computations using
Microsoft® Word or Excel®.
Format the
assignment consistent with APA guidelines.
Click the Assignment Files tab to
submit your assignment.
V112417
ACC 561 WEEK 5 Cost Behavior
Analysis
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