Question

In: Accounting

The following revenue and expense figures relate to the first year of the rodeo. Receipts Contributions...

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

Break-even point in Dollars is fixed cost / contribution margin ratio

Since the variable is at 4% total revenue, the contribution margin ratio is 96% or .96

$51,000/ .96 = $53,125

Contributions from sponsors = $25,600

Amount from ticket sales for break-even = $27,525

Compute the break-even point in dollars of ticket sales assuming Adrian and Jonathan's assumptions are correct as given in the case. This requirement is to calculate break even in dollars. The amount you calculate will be from all sources of revenue including contributions from sponsors. The requirement is for ticket sales only. Contributions from sponsors is stated in the case as $25,600. As an example, let's say that using the break even formula you calculate break even in dollars as $60,000. This is not the answer for the requirement. You need the amount of ticket sales which would be the $60,000 less $25,600 or $34,400 in ticket sales. It is critical that you account for the contributions from the sponsors. The rest of the case deals with ticket sales revenue. If you don't calculate ticket sales correctly, all of the other case answers you get will be wrong.

Note: The case states that variable costs are 4% of total revenue. What must the contribution margin ratio be if variable costs are 4% of total revenue?

Section 2

Shelley 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).

Calculate the dollars of ticket sales needed to earn a target profit of $6,000.

Calculate the dollars of ticket sales needed to earn a target profit of $12,000.

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.

Solutions

Expert Solution

Break even sales

Amount ($)

Fixed costs:

Livestock contractor

   26,000.00

Prize money

   21,000.00

Sponsor signs for arena

     1,900.00

Insurance

     1,800.00

Judging fees

         750.00

Rent

         600.00

Programs

         500.00

Miscellaneous fixed costs

         105.00

   52,655.00

Contribution margin

             0.96

Breakeven point (Fixed costs / Contribution margin ratio)

   54,848.96

Less: Contribution from sponsors

   22,000.00

Break-even point in Dollar sales

   32,848.96

Ticket sales needed to earn profit $6,000

(Fixed costs + desired profit) / Contribution margin ratio

Ticket sales needed to earn profit $6,000 (52655 +6000)/96%

   58,905.00

Less: Contribution from sponsors

   22,000.00

Ticket sales needed to earn profit $6,000

   36,905.00

Ticket sales needed to earn profit $12,000

(Fixed costs + desired profit) / Contribution margin ratio

Ticket sales needed to earn profit $6,000 (52655 +12000)/96%

   65,155.00

Less: Contribution from sponsors

   22,000.00

Ticket sales needed to earn profit $6,000

   43,155.00


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