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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 consider- able amount of research, Shelley proposed that the Circular Club sponsor a pro- fessional 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 com- munity, 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 sanction- ing 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 com- mittee 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 in- dividuals 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.

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Answer 1

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12. In the situation where the additional space for two sponsors signs is available, below is the cost analysis referring to relevant costs: (i) Opportunity cost = $600 x 2 (For two spots) = $ 1200 Less: Cost for display = $48x2 = $96 Total opportunity cost (ie., revenue forgone) = $ 1104 (2) Cost to be incurred as per current scenario = $3341 Less: expected revenue from additional signs=$1104 Net cost expected to be incurred = $ 2237 Therefore, as the relevant cost for the existing situation is more than the cost for getting catering against the sign display, it would be preferable to accept the suggestion of catering against the display of sponsor spots. In the situation where there is no additional space for two sponsors signs, below is the cost analysis referring to relevant costs: (1) The opportunity cost of revenue forgone = $1200 (2) Cost to be incurred as per current scenario = $3341

As the cost incurred for the sings is less than the additional catering costs, it is still advisable to get catering against the display of the signboards. What kind of cost would we consider in this situation that would not be found on a financial statement? Opportunity cost is considered herein decision making which is not disclosed in the financial statements. But it is very important in the management decision making