Question

Location Strategies:   Southwestern University’s Location Decision

With the steady growth in attendance at Saturday home football games, Southwestern University’s president, Dr. Joel Wisner, had reached a decision. The existing stadium, with seating capacity of 54,000, simply would not suffice.

But the choice of what to do was anything but clear to President Wisner. His vice president of development, Leslie Gardner, had presented three options: (1) expand the existing stadium to 75,000 seats, adding numerous luxury skyboxes and upgrading most of the yardline seats to include comfortable backings; (2) build a brand-new stadium three miles from campus on land, worth about $3 million, donated by a team booster; and (3) signing a 10-year contract with the Dallas Cowboys football team to rent their stadium, 28 miles away, for a fee of $200,000 per game.

Each of these options had clear benefits–yet each had at least one very strong negative as well. Expanding the current facility carried a $12 million price tag, with an annual fixed cost of about $1 million and with a variable cost of about $1 per attendee.

Building a brand-new stadium off-campus would yield a plush, state-of-the-art facility, but it had to be named after the donor of the land. It also meant a huge fundraising drive on the order of $40 million by President Wisner, plus likely bond insurance placing a 20-year debt burden on the college’s balance sheet. He tentatively concluded that fixed cost would be in the neighborhood of $5 million per year and variable cost about $2 per attendee.

The third option had definite advantages from the perspective of many, if not most, of the fans who attended the games. A large number already lived in the Dallas—Fort Worth area and would be spared the long commute and horrible traffic jams that always seemed to occur in Stephenville on game days. Clearly, however, students would be unhappy and buses would have to be provided by SWU, for free, to bring students from Stephenville to Dallas. While the actual noted price of $200,000 per game seemed high on the surface, the $1 million per season (there are five home games a year) was a drop in the bucket compared to the other options. However, the Dean of Students said the school should expect the bus transportation to be about $10 for each of the 15,000 student tickets sold for each game.

Q1. Prepare a crossover chart based on the information provided.

Answer 1

A crossover chart shows superiority of one option over other using the volume cost analysis. Prepare a cross over chart as shown below: Total cost

= Fixed cost t + Variable cost xVolume

Factors	Existing Sites	New Site	Dallas C F
Fixed cost - A	$1,000,000	$5,000,000	$1,750,000
Variable costs B	$1	$2	$0
Volume - C	75000	75000
Total cost =A+B*C	$1,075,000.00	$5,150,000.00	$1,750,000.00