Question

THE BUSINESS SITUATION

                When Shelley Jones became president-elect of the Circular Club of Auburn, Kansas,

she was asked to suggest a new fundraising activity for the club. After a considerable

amount of research, Shelley proposed that the Circular Club sponsor a professional

rodeo. In her presentation to the club, Shelley said that she wanted 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. Shelley’s goal was to

have an activity that would become an “annual community event” and that would

break even the first year and raise $5,000 the following year. In addition, based on

the experience of other communities, Shelley believed that a rodeo could grow in

popularity so that 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.

Because there were a number of team ropers in the area and because they

wanted to include females in the competition, members of the rodeo committee

added Team Roping and Women’s Barrels. Prize money 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 that costs associated with the rodeo were tremendous and that

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 Sponsors would contribute $1,000 to exhibit

their products or services, while Major Sponsors would contribute $600. Chute

Sponsors would contribute $500 to have the name of their business on one of the

six bucking chutes. For a contribution of $100, individuals would be included in

a Friends of Rodeo list found in the rodeo programs. At each performance the

rodeo announcer would repeatedly mention the names of the businesses and individuals

at each level of sponsorship. In addition, large signs and banners with

the names of the businesses of the Exhibiting Sponsors, Major Sponsors, and

Chute Sponsors were to be displayed prominently in the arena.

CaseA local youth group was contacted to provide concessions to the public and

divide the profits with the Circular Club. The Auburn Circular Club Pro Rodeo

Roundup would be held on June 1, 2, and 3. The cost of an adult ticket was set

at $8 in advance or $10 at the gate; the cost of a ticket for a child 12 or younger

was set at $6 in advance or $8 at the gate. Tickets were not date-specific. Rather,

one ticket would admit an individual to one performance of his or her choice—

Friday, Saturday, or Sunday. The rodeo committee was able to secure a location

through the county supervisors board at a nominal cost to the Circular Club. The

arrangement allowed the use of the county fair grounds and arena for a oneweek

period. Several months prior to the rodeo, members of the rodeo committee

had been assured that 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 600

Total receipts $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.”

Answer Questions Below

1. Do yo think it was necessary for shelly joes to stipulate that she (1) wanted a fundraiser that world 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 Johnathan Edmunds mean when he said the club had made an invstment in the rodeo?

5. Determine the fixed and variable cost components of the catering costs using the high low method?

Answer 1

1)
Yes, it was necessary for shelly jones to set goals.
Shelley proposal that the Circular Club sponsor a professional Rodeo may not make a profit in the first year but may produce a profit in the future by successfully using management accounting techniques such as planning, controlling and monitoring activities.
The non-profit organization has a goal to give back to the community in a variety of ways making donations to worthy causes , volunteering etc.The Circular Club of Auburn wants to give back tothe community by providing annual community event as an entertainment to the public and the funds raised by the event will used for worthy causes .
By sponsoring a professional rodeo the Circular club will get exposure through public radio announcements, fliers, and advertising posters throughout the community.
2)
Johnathan Edmunds meant to say its a investment of time, effort and monetary resources and professional rodeo sponsorship will help the club in achieving goals and objectives.
3)
	Contestants	Total Cost
Friday	68	$998.00	Low
Saturday	96	$1,243.00	High
Sunday	83	$1,100.00
Total Cost		$3,341.00
Step 1		Contestants	Total Cost
High Day	Saturday	96	$1,243
Low Day	Friday	68	$998
Difference		28	$245
Step - 2 Variable cost per contestant = $245/28	$8.75
Fixed Cost
Saturday = $1243 - (96 x $8.75)	$403
Friday = $998 - (68 x $8.75)	$403
Step -3 Fixed Cost per contestant	$403
Step 5 = Total variable cost = No. of contestant x $8.75
	Contestants	Fixed cost	Variable cost	Total Cost
Friday	68	$403	$595	$998
Saturday	96	$403	$840	$1,243