Question

Food and Beverages at Northeastern University Football Games

Northeastern University (NEU), a large state college in Stephenville, Texas, 30 miles northeast of the Dallas/Fort Worth metroplex, enrolls close to 20,000 students. The school is the dominant force in the small city, with more students during fall and spring than permanent residents.

A longtime football powerhouse, NEU is a member of the Big Eleven conference and is usually in the top 20 in college football rankings. To bolster its chances of reaching the elusive and long-desired number-one ranking, in 2010 NEU hired the legendary Bo Pitterno as its head coach. Although the number one ranking remained out of reach, attendance at the five Saturday home games each year increased. Prior to Pitterno’s arrival, attendance generally averaged 25,000–29,000. Season ticket sales bumped up by 10,000 just with the announcement of the new coach’s arrival. Stephenville and NEU were ready to move to the big time!

With the growth in attendance came more fame, the need for a bigger stadium, and more complaints about seating, parking, long lines, and concession stand prices. Northeastern University’s president, Dr. Marty Starr, was concerned not only about the cost of expanding the existing stadium versus building a new stadium but also about the ancillary activities. He wanted to be sure that these various support activities generated revenue adequate to pay for themselves. Consequently, he wanted the parking lots, game programs, and food service to all be handled as profit centers. At a recent meeting discussing the new stadium, Starr told the stadium manager, Hank Maddux, to develop a break-even chart and related data for each of the centers. He instructed Maddux to have the food service area break-even report ready for the next meeting. After discussion with other facility managers and his subordinates, Maddux developed the following table showing the suggested selling prices, and his estimate of variable costs, and the percent revenue by item. It also provides an estimate of the percentage of the total revenues that would be expected for each of the items based on historical sales data.

ITEM	SELLING PRICE/UNIT	VARIABLE COST/UNIT	PERCENT REVENUE
Soft Drink	$1.50	$0.75	25%
Coffee	2.00	0.50	25
Hot Dogs	2.00	0.80	20
Hamburgers	2.50	1.00	20
Misc. Snacks	1.00	0.40	10

Maddux’s fixed costs are interesting. He estimated that the prorated portion of the stadium cost would be as follows:

salaries for food services at $100,000 ($20,000 for each of the five home games); 2,400 square feet of stadium space at $2 per square foot per game; and six people per booth in each of the six booths for 5 hours at $7 an hour. These fixed costs will be proportionately allocated to each of the products based on the percentages provided in the table. For example, the revenue from soft drinks would be expected to cover 25% of the total fixed costs.

Maddux wants to be sure that he has a number of things for President Starr:

(1) the total fixed cost that must be covered at each of the games;

(2) the portion of the fixed cost allocated to each of the items;

(3) what his unit sales would be at break-even for each item—that is, what sales of soft drinks, coffee, hot dogs, and hamburgers are necessary to cover the portion of the fixed cost allocated to each of these items;

(4) what the dollar sales for each of these would be at these break-even points; and

(5) realistic sales estimates per attendee for attendance of 60,000 and 35,000. (In other words, he wants to know how many dollars each attendee is spending on food at his projected break-even sales at present and if attendance grows to 60,000.) He felt this last piece of information would be helpful to understand how realistic the assumptions of his model are, and this information could be compared with similar figures from previous seasons.

Discussion Question

1. Prepare a brief report with the items noted so it is ready for Dr. Starr at the next meeting.

Note: Answers should be in word version format please

Answer 1

The Estimatedfixed costs are disclosed as follows:

1. Salaries for 5 games: $100000
2. Cost of stadium space:(2400*$2*5) $ 24000

3:Booth Expense: (6*6*5*5)*$7 $ 6300

Total Fixed expense for 5 games = $(100000+24000+6300)= $130300

The portion of fixed expenses allocated to each item are

Soft Drinks: $(130300*0.25) = $32575

Coffee : $(130300*0.25) = $32575

Hot dog: $(130300*0.20) =$26060

Hamburger : $(130300*0.20)=$26060

Misc Snacks: $(130300*0.10)=$13030

Break even is a point where the company's revenues is equal to its cost.The computation can be done by applying the following formullae : Fixed Cost/(Sales price per unit- Variable costs per unit)

Soft Drinks: 32575/(1.5-0.75)=43433 units

Coffee: 32575/(2-0.5)=21717 units

Hotdog: 26060/(2-0.8)=21717 units

Hamburger: 26060/(2.5-1)=17373 units

Misc Snacks:13030/(1-0.4)=21717 units

The dollar sales for each of this items at break even sales point is computed by the following formullae

Break-Even sales unit * Sales Price per unit

Soft Drinks: 43433*1.5 =$65150

Coffee: 21717* 2 =$43434

Hotdog: 21717* 2 =$43434

Hamburger:17373*2.5= $43433

Misc Snacks: 21717*1= $21717

At the present level of attendance of 35000 where the breakeven is computed after the announcement of the new coach BO Pitterno the realistic sales estimates on food per attendee is= $(65150+43434+43433+21717)/35000= $4.96.

Now if the attendance increases to 60000 assuming the taste and preference of the croud remains constant the new revenue would be= $4.96*60000 =$297600