Question

Cassi Cronin is the Women’s head varsity hockey coach at USGB University. She has enjoyed considerable success over the years and is considering starting a summer hockey camp. USGB University would charge Coach for rooms, meals and ice-rink time for participants, plus a 10% commission based upon the price charged to campers. Coach Cassi has heard of the CVP experts in Acct 2220 and is asking for your help (and she is willing to pay!). You state that some of the important factors in analyzing such an opportunity involve setting fees, predicting enrollments and estimating the behavior of costs. Accordingly, planning ahead involves estimates and assumptions. Coach has provided estimates as follows:

Expected/Planned enrollments each week	90 campers
Average price to be charged for one-week of camp	$225 per camper
Estimated Costs:
Asst coaches’ salaries	$550 per coach per week
Campus food/dining for campers	$40 per camper
Health insurance and fancy USGB T-shirts	$15 per camper
Room rent charged by university	$28 per camper
Ice Arena & locker room charge (by University)	$2,000/week, plus 10% of camper fee
Admin, marketing brochures, mailings, etc.	$2,700 for each week

Coach Cassi states that other camps have typically employed one assistant coach for each 15 campers, excluding the director (Cassi in this case). One problem is that you need to hire the coaches before you know the enrollments, although it is usually possible to find one or two at the last minute. It is, however, important to hire most of the assistant coaches early so you can use their names in the marketing brochures. Further, while the enrollment and prices given are averages, variations exist, with enrollments generally ranging from 60 to 110 and weekly camper fees ranging from $160 to $330. As might be expected, the better-known camps have higher enrollments at higher prices, but they also pay more for more well-known coaches. Coach Cassi will keep any profits (or suffer any losses), so she wants to be fairly confident before proceeding with this venture.

Required: Use the CVP Equation Method (& template) to Analyze:

1. If Coach hires the needed number of assistant coaches, incurs the commission and realizes all of the averages above, what would be her weekly pre-tax profit? To determine this, identify whether each cost is variable or fixed and setup a CM Template (as shown in class) to confirm all data relationships. Next use the equation method (i.e. S – VC – FC = “something”) to notate your analysis. Third, return to the CM template and confirm your work and “prove” your answer.

2. Assuming Coach hires the required number of coaches to support her planned enrollments, what would be her break-even point in the number of campers and in sales dollars?   Again, use the equation approach to develop (notate) an equation to address this question. Once determined, prepare a new CM template to prove your answer.

3. Assuming Coach hires the required number of coaches to support her planned enrollments, what weekly per-camper fee would enable coach to earn an after-tax weekly profit of $2,400 assuming the expected number of campers is realized? Assume a 40% income tax rate. Hint: Make sure to consider how you will “notate” the commission (which will be a function of weekly fee charged). In other words, keep the commission separate from the other variable costs as you prepare your equation. When completed, return to your CM Template to confirm your answer.

4. List two qualitative (i.e. subjective) considerations that, in your opinion, may affect this decision. In essence, what else should Coach consider before committing to this venture?  

5. Marketing Dept Question: Based upon your answer in PART C, what camper fee would you recommend Coach Cassi actually charge (and include in her marketing brochures)? Why?

6. As consultant, what would you charge (invoice) Coach for your analysis and professional services?

Answer 1

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