Question

Case 5 Auburn Circular Club Pro Rodeo Roundup Developed by Jess ica Jonson Frazier Eastern Kentucky University, and Patricia H. Mounce, University of Central Arkansas The Business Situation When she was asked t Shelley Jones became president-elect of the Circular Club of Auburn, Kansas o suggest a new fundraising activity for the club. After a consider- roposed that the Circular Club sponsor a pro- amount of research, Shelley p 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.

Answer 1

1. Yes, it was necessary for Shelly Jones to mention that she wanted a fundraiser. Because as she took charge as President of the club it was her responsibility to (1) continue to get better each year (2) give back to the society (3) provide the club a presence in the community, for this goals she needed to arrange the fundraiser event.

2. Although the club had made some losses Jonathan said that club had made an investment in the rodeo. Because it can be clearly seen that the club made a presence in the community through the event, in the first year only it had collected significant amount from the sponsors and from ticket sales, it could be a profitable event through little effort from the next year. So it is not a bad investment at all.

3. Yes, Jonathan’s comment is consistent with Shelly’s idea because that is part of what he was meaning by his statement about the club’s investment in the rodeo. Not only he could see it becoming profitable, but also he was looking at it from the perspective that it was benefiting the community and that, in the long run would be something that the club would be known for.

4. Yes, there is a direct relationship of rodeo expenditure and ticket sales because it has incurred expenditure for promotional activities like sponsors sign for arena, western hats for first 500 children. The the more promotional features of the rodeo, the more people will probably want to come. Also there are lots of expenditures too which are directly not related to ticket sales.

5. High Low Method provides an easy way to split fixed and variable components of combined costs using the following formula.

Variable Cost Per Unit= Highest Activity Cost-Lowest Activity Cost/ Highest Activity Units-Lowest Activity Units

Once variable cost per unit is found, you can calculate the fixed cost by subtracting the total variable cost at a specific activity level from the total cost at that activity level.

Fixed Cost Highest Activity Cost - (Variable Cost Per Units x Highest Activity Units)  =  

Or

Fixed Cost Lowest Activity Cost - (Variable Cost Per Units x Lowest Activity Units)  =  

Here, highest activity level is 96 and lowest activity level is 68

And highest activity cost is $1,243 and lowest activity cost is $998

Variable Cost = 1,243-998/96-68 = $8.75

Fixed Cost = 1,243-(8.75*96) = $403

From the calculation we can see that the fixed cost component of the catering costs is $403, and the variable cost component is $8.75 per contestant.

6. Suggested steps to the committee:-

• Review the expenses incurred in previous year rodeo event to avoid unnecessary expenses

Look for quotation from other life stock contractor to get the cheaper price

• Ticket must be dated to avoid re-used of ticket by other individual

• To keep strong gate control

• Should negotiate with local caterers, hotels, and other local business owners, costs can be cut dramatically

• Should talk to sponsors who sponsored the rodeo to increase the sponsorship collection

• Spend little more in promotional activities to increase the ticket sale

7. Variable cost is 4% of gross receipts. So contribution margin is

= 100%-4% = 96%

Given fixed cost = $51,000

BEP in dollars = 51,000/96% = 51,000*100/96 = $53,125

8. (a) Dollars of ticket sale needed in order to earn a target profit of $6000 = Fixed Cost+Target Income/Contribution Margin = $51,000 + $6000 /96% = $59,375

Dollar of ticket sale needed = Required Gross Receipt - Income from Sponsors = 59,375 - 25,600(given in q8) = $33,775

(b) Dollars of ticket sale needed in order to earn a target profit of $12,000 = Fixed Cost+Target Income/Contribution Margin =

$51,000 + $12,000/96% = $65,625

Dollar of ticket sale needed = Required Gross Receipt - Income from Sponsors = 65,625 - 25,600(given in q8) = $40,025

9. Let's calculate the average price of the ticket = $10 + $8 + $6 + $8 / 4 = $8

For target income of $6000 we need $33,775 from ticket sales. So, patrons needed for this = $33,775/$8 = 4,222 patrons (Rounded off)

And the event held for 3 days, so attendance per day required is = 4,222/3 = 1,407 (Rounded off)

Since the arena could hold 2,500 patrons, the facilities at the fairgrounds are adequate to handle crowds.