Cost Behavior Analysis: Create 4 PowerPoint Slides
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Cost behavior analysis create 4-PowerPoint slides, including detailed speaker notes, as the committee's consultation team and respond to the following: 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.
After 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.
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The following analysis provides a comprehensive approach to understanding the financial planning for the upcoming rodeo event by evaluating cost behavior, break-even analysis, targeted profit sales, and facility capacity considerations. These calculations are essential for rational budgeting, pricing strategies, and assessing logistical feasibility.
Break-Even Point in Dollars of Ticket Sales
To determine the break-even point, we first identify the fixed and variable costs, then calculate the necessary ticket sales to cover these expenses.
The fixed costs are estimated at $51,000, based on Jonathan's analysis (as detailed in the scenario). Variable costs amount to 4% of total gross receipts. Sponsorship revenue is projected at $25,600, and no sales from rodeo programs are expected, as the committee chooses not to sell them next year. The concessions are entirely profit-driven for the youth group, and since they retain 100% of profits, these are excluded from gross revenue and cost calculations — assuming no net effect on ticket sales.
Let T be the total ticket sales in dollars needed to break even. Variable costs (VC) are calculated as 4% of T, i.e., VC = 0.04T. The total revenue to cover costs includes fixed expenses and variable costs:
Fixed Costs (FC) = $51,000
Variable Costs (VC) = 0.04T
Revenue from ticket sales (T) must cover FC + VC to break even, thus:
T = FC + VC
Substituting VC:
T = 51,000 + 0.04T
Rearranged:
T - 0.04T = 51,000
0.96T = 51,000
T = 51,000 / 0.96 ≈ $53,125
Therefore, the minimum ticket sales needed to break even are approximately $53,125.
Ticket Sales for Target Profits
To determine sales needed for target profits, the formula adjusts to include the desired net income (profit).
Let P be the target profit, then:
T = FC + VC + P
Again, express VC as 0.04T:
T = 51,000 + 0.04T + P
Rearranged:
T - 0.04T = 51,000 + P
0.96T = 51,000 + P
For a target profit of $6,000:
T = (51,000 + 6,000) / 0.96 ≈ $59,375
For a target profit of $12,000:
T = (51,000 + 12,000) / 0.96 ≈ $68,750
Thus, approximately $59,375 in ticket sales are needed to earn $6,000 profit, and $68,750 for a $12,000 profit.
Facility Capacity and Revenue Feasibility
Assessing whether the fairgrounds facilities are adequate depends on estimating the number of attendees corresponding to the required revenue levels and the venue's capacity.
Assuming the ticket price is set at a certain value (say, $20 per ticket), the number of tickets needed for the $6,000 profit scenario is:
Number of tickets = Total ticket sales / ticket price = $59,375 / $20 ≈ 2,969 tickets
Similarly, for the $12,000 profit scenario:
Number of tickets = $68,750 / $20 ≈ 3,438 tickets
If the fairgrounds can handle at least 3,500 attendees comfortably, then the facilities are adequate for generating the revenue needed for profits of $6,000 and beyond. If capacity is significantly lower, alternative arrangements or venue expansion might be necessary to meet revenue goals.
Overall, these calculations highlight the importance of careful financial planning, understanding cost behavior, and logistical considerations to ensure a successful rodeo event that meets revenue and profit targets while remaining within facility capacity constraints.
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