Question

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 $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." The rodeo committee has requested an analysis of the rodeos performance and evaluation of the CPA's review. 1. 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: Continue to get better each year. 2Give back to the community. 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, inn- keepers, 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. 3After 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. 5Compute the break-even point in dollars of ticket sales assuming Adrian and Jonathan are correct in their assumptions. 6Shelley 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). 7Calculate the dollars of ticket sales needed to earn a target profit of $6,000. 8Calculate the dollars of ticket sales needed to earn a target profit of $12,000. 9 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. #10 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? 11 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. 13Adrian 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? 15Would 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? 15Assume you are elected chair of the rodeo committee for next year. What steps would you suggest the committee take to make the rodeo profitable? Please answer #10.

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	$403.00	$595.00	$998.00
Saturday	96	$403.00	$840	$1,243