Describe the type and nature of the decisions facing the stadium manager in the Case Study below.
Southwestern University (SWU), located 30 miles southwest of the Dallas/Fort Worth metroplex, has witnessed tremendous growth in its football program. With that growth, fueled by the hiring of legendary coach Bo Pitterno, has come more fame, the need for a bigger stadium, and more complaints about seating, parking, long lines, and concession stand prices). Southwestern Universityâ??s president, Dr. Marty Starr, was not only concerned about the cost of expanding the existing stadium versus building a new stadium, but also about the ancillary activities. He wants to be sure that these various support activities generate revenue adequate to pay for themselves. Consequently, he wants the parking lots, game programs, and food service to all be handled as profit centers. At a recent meeting discussing the new stadium, Wisner told the stadium manager, Hank Maddux, to develop a break-even chart and related data for each of the centers. He instructed Maddux to have the food service area break-even report ready for the next meeting. After discussion with other facility managers and his subordinates, Maddux developed the table below. This table shows the expected percent of revenue by item, the suggested selling prices, and his estimate of variable costs.
Selling Variable Percent
Item Price/Unit Cost/Unit Revenue
Soft drink $1.50 $ .75 25%
Coffee 2.00 .50 25%
Hot dogs 2.00 .80 20%
Hamburgers 2.50 1.00 20%
Misc. snacks 1.00 .40 10%
Maddux's fixed costs are interesting. He estimated that the prorated portion of the stadium cost would be: salaries for food services at $100,000 ($20,000 for each of the five home games); 2,400 square feet of stadium space at $2 per square foot per game; and six people in each of the six booths for 5 hours at $7 an hour. These costs will be proportionately allocated to each of the products based on the percentages provided in the table above. For example, revenue from soft drinks would be expected to cover 25% of the total fixed costs.
Maddux wants to be sure that he has a number of things for President Starr: (1) total fixed costs that must be covered at each of the games; (2) portion of the fixed cost allocated to each of the items (3) what his unit sales would be at break-even for each item--that is the sales of soft drinks, coffee, hot dogs, and hamburgers are necessary to cover the portion of the fixed cost allocated to each of these items (4) what dollar sales for each of these would be at these break-even points (5) realistic sales estimates per attendee for attendance of 60,000 and 35,000. (In other words, he wants to know how many dollars each attendee is spending on food at his projected break-even sales at present and if attendance grows to 60,000). He felt this latter information would be helpful to understand how realistic the assumptions of his model are. He also wanted to be prepared for any questions that Dr. Starr and others might bring up at the next meeting.© BrainMass Inc. brainmass.com June 4, 2020, 1:10 am ad1c9bdddf
Your response is 721 words plus a report in excel. See the formulas in the ...
Your response is 721 words plus a report in excel. See the formulas in the cells in excel to understand my work. I explain the report, the reasonableness of the computations, and other decisions that may impact the decision to expand the stadium. Weaknesses of the breakeven approach are also discussed.