CASE 5Auburn CircularClub Pro RodeoRoundup

InstructionsAnswer each of the following questions.1. Do you think it was necessary for Shelley Jones to stipulate that she wanted afundraiser that would (1) continue to get better each year, (2) give back to the community,and (3) provide the club a presence in the community? Why or why not?2. What did Jonathan Edmunds mean when he said the club had made an investmentin the rodeo?3. Is Jonathan’s comment concerning the investment consistent with Shelley’s idea thatthe club should have a fundraiser that would (1) continue to get better each year,(2) give back to the community, and (3) provide the club a presence in the community?Why or why not?4. What do you believe is the behavior of the rodeo expenditures in relation to ticketsales?5. Determine the fixed and variable cost components of the catering costs using thehigh-low method.6. Assume you are elected chair of the rodeo committee for next year. What steps wouldyou suggest the committee take to make the rodeo profitable?7. Shelley, Jonathan, and Adrian Stein, the Fundraising Chairperson, are beginning tomake plans for next year’s rodeo. Shelley believes that by negotiating with local feedstores, innkeepers, and other business owners, costs can be cut dramatically. Jonathanagrees. After carefully analyzing costs, Jonathan has estimated that the fixed expensescan be pared to approximately $51,000. In addition, Jonathan estimates that variablecosts are 4% of total gross receipts.After talking with business owners who attended the rodeo, Adrian is confidentthat funds solicited from sponsors will increase. Adrian is comfortable in budgetingrevenue from sponsors at $25,600. The local youth group is unwilling to provide concessionsto the audience unless they receive all of the profits. Not having the personnelto staff the concession booth, members of the Circular Club reluctantly agree tolet the youth group have 100% of the profits from the concessions. In addition, membersof the rodeo committee, recognizing that the net income from programs was only$100, decide not to sell rodeo programs next year. Compute the break-even point indollars of ticket sales assuming Adrian and Jonathan are correct in their assumptions.8. Shelley has just learned that you are calculating the break-even point in dollars of ticketsales. She is still convinced that the Club can make a profit using the assumptions innumber 7 above.(a) Calculate the dollars of ticket sales needed in order to earn a target profit of$6,000.(b) Calculate the dollars of ticket sales needed in order to earn a target profit of$12,000.9. Are the facilities at the fairgrounds adequate to handle crowds needed to generateticket revenues calculated in number 8 above to earn a $6,000 profit? Show calculationsto support your answers.10. Prepare a budgeted income statement for next year using the estimated revenuesfrom sponsors and other assumptions in number 7 above. In addition, use ticket salesbased on the target profit of $12,000 estimated in 8(b). The cost of the livestock contractor,prize money, sanctioning fees, entertainment, judging fees, rent, and utilitieswill remain the same next year.Changes in expenses include the following: Members of the Club have decided toeliminate all costs related to contestant hospitality by soliciting a tent and food for thecontestants and taking care of the “Contestant Hospitality Tent” themselves. The countyhas installed permanent restrooms at the arena, eliminating the need to rent port-apotties.The rodeo committee intends to pursue arrangements to have hotel rooms, hay,and children’s hats provided at no charge in exchange for sponsorships. The cost ofbanners varies with the number of sponsors. Signs and More charged the Circular Club$130 for each Exhibiting Sponsor banner and $48 for each Major Sponsor banner. Atthis time there is no way to know whether additional sponsors will be Exhibiting Sponsorsor Major Sponsors. Therefore, for budgeting purposes you should increase thecost of the banners by the percentage increase in sponsor contributions. (Hint: Round all calculations to three decimal places.) By checking prices, the Circular Club will beable to obtain insurance providing essentially the same amount of coverage as this yearfor only $600. For the first rodeo the Club ordered 10,000 tickets. Realizing the constraintson available seating, the Club is ordering only 5,000 tickets for next year, andtherefore its costs are reduced 50%. The sand for the arena for next year will be $300,and miscellaneous fixed costs are to be budgeted at $100.11. A few members in the Circular Club do not want to continue with the annual rodeo.However, Shelley is insistent that the Club must continue to conduct the rodeo as anannual fundraiser. Shelley argues that she has spent hundreds of dollars on westernboots, hats, and other items of clothing to wear to the rodeo. Are the expenses relatedto Shelley’s purchases of rodeo clothing relevant costs? Why or why not?12. 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 theevent in exchange for a $600 Major Sponsor spot. In addition, The Fun Shop, a localparty supply business, will be asked to donate a tent to use for the event. The FunShop will also be given a $600 Major Sponsor spot. Several members of the Club areopposed to this consideration, arguing that the two Major Sponsor spots will takeaway from the money to be earned through other sponsors. Adrian Stein has explainedto the members that 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. Whatwould 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 additionalsigns that could be displayed? What kind of cost would we consider in this situationthat would not be found on a financial statement?

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