In: Accounting
Giggles Comedy Emporium provides entertainment for birthday parties. Over the last year, Giggles has entertained at over 150 birthday parties. Giggles’ business is booming! The company has parties booked solid for the next six months. Customers generally must book 6-8 months in advance to secure a spot. Mark Spear, the owner of Giggles Comedy Emporium, however, is worried. His business is busy, his customers are extremely happy, his employees are happy, but he is barely breaking even. He cannot understand, with his business being so successful, why he is barely able to pay himself a wage. Mark has asked you to help him figure out what he is doing wrong.
The services provided at each party vary. Some customers only want a clown to perform and they handle the other party details themselves. Other customers want a full package – food, cake, entertainment, cleanup, party favours, decorations, and costumes for the kids. Mark has identified the following services that can be provided at a party.
Mark has set up a fee schedule for each service as follows:
Service |
Fee charged to customer |
Clown |
$60 per party |
Food |
$15 per child |
Cake |
$2 per child |
Cleanup |
$2 per child |
Party favours |
$6 per child |
Decorations |
$2 per child |
Costumes |
$6 per child |
During the two weeks, Mark catered 6 parties. Some details of the parties are shown below:
Customer |
1 |
2 |
3 |
4 |
5 |
6 |
# of kids attended |
20 |
25 |
45 |
15 |
5 |
12 |
Clown |
Y |
Y |
Y |
Y |
N |
Y |
Food services |
Y |
Y |
N |
N |
Y |
N |
Cake |
Y |
N |
N |
Y |
Y |
N |
Clean up |
Y |
Y |
N |
N |
Y |
N |
Party favours |
Y |
Y |
N |
N |
y |
N |
Decorations |
Y |
Y |
Y |
N |
Y |
N |
Costumes |
N |
N |
Y |
N |
Y |
N |
REQUIRED:
Calculate the customer-level operating income for each customer by preparing a customer profitability analysis. Rank the customers according to profitability.