The task is due today April 17 and not sure if it has to be done on excel or not along with a 700 word in answering a question. Please look at the attachment I presented for more details.
cost_behavior_analysis_instructions.docx
cost_volume_profit_analysis.docx
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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
Total receipts
$600
$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:
o Continue to get better each year.
o Give back to the community.
o 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, innkeepers, 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.
o
•
•
•
•
•
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).
o Calculate the dollars of ticket sales needed to earn a target profit of $6,000.
o 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.
Grading Guide
Content
Met
Partially
Met
Not Met
Total
Available
Total
Earned
4
#/4
Partially
Met
Not Met
Comments:
Computed the current break-even point in
units, and compared it to the break-even point
in units if Mary’s ideas were used.
Computed the margin of safety ratio for
current operations and after Mary’s changes
were introduced (rounded to nearest full
percent).
Prepared a CVP (Cost-Volume-Profit)
income statement for current operations
and after Mary’s changes were
introduced.
Explained whether Mary’s changes
should be adopted. Why or why not?
Analyzed the information (first three rows
above) and used the information to
support student’s suggestion.
Showed work in Microsoft® Word or
Excel®. Completed calculations/computations
using Microsoft® Word or Excel®.
The informal memo is a maximum 700 words
in length.
Writing Guidelines
The paper—including tables and graphs,
headings, title page, and reference page—is
consistent with APA formatting guidelines and
meets course-level requirements.
Intellectual property is recognized with in-text
citations and a reference page.
Paragraph and sentence transitions are
present, logical, and maintain the flow
throughout the paper.
Sentences are complete, clear, and concise.
Rules of grammar and usage are followed
including spelling and punctuation.
Met
Comments:
Writing Guidelines
Assignment Total
Met
#
Partially
Met
Not Met
Total
Available
Total
Earned
2
#/2
6
#/6
Comments:
Additional comments:
COST-VOLUME-PROFIT ANALYSIS
Purpose of Assignment
The Case Study focuses on CVP (Cost-Volume-Profit), break-even, and margin of safety analyses
which allows students to experience working through a business scenario and applying these tools
in managerial decision making.
Assignment Steps
Resources: Generally Accepted Accounting Principles (GAAP), U.S. Securities and Exchange
Commission (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: Mary Willis is the advertising manager for Bargain Shoe Store. She is currently working
on a major promotional campaign. Her ideas include the installation of a new lighting system and
increased display space that will add $24,000 in fixed costs to the $270,000 in fixed costs currently
spent. In addition, Mary is proposing a 5% price decrease ($40 to $38) will produce a 20% increase
in sales volume (20,000 to 24,000). Variable costs will remain at $24 per pair of shoes. Management
is impressed with Mary’s ideas but concerned about the effects these changes will have on the
break-even point and the margin of safety.
Complete the following:
•
•
•
Compute the current break-even point in units, and compare it to the break-even point in
units if Mary’s ideas are used.
Compute the margin of safety ratio for current operations and after Mary’s changes are
introduced (Round to nearest full percent).
Prepare a CVP (Cost-Volume-Profit) income statement for current operations and after
Mary’s changes are introduced.
Prepare a maximum 700-word informal memo to management addressing Mary’s suggested
changes.
•
Explain whether Mary’s changes should be adopted. Why or why not? Analyze the above
information (three bullet points above) and use this information to support your
suggestion.
Show your work in Microsoft® Word or Excel®.
Complete calculations/computations using Microsoft® Word or Excel®.
…
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