Reference no: EM131561317

Scenario: Shelley Jones has just been elected as president of the Circular Club of Auburn, Kansas, and she has been asked to suggest a new fundraising activity for the club. After a considerable amount of research, Shelley proposed the Circular Club sponsor a professional rodeo. In her presentation to the club, Shelley recommends the fundraiser become an annual activity with the following goals:

• Continue to grow each year
• Give back to the community
• Provide the club a presence in the community 

Shelley's goal in the first year is to have an activity that would become an "annual community event" and would break even the first year and raise $5,000 the following year. In addition, based on the experience of other communities, Shelley believed a rodeo could grow in popularity so 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 sanctioning agency requires a rodeo to consist of the following five events: Bareback Riding, Bronco Riding, Steer Wrestling, Bull Riding, and Calf Roping, Team Roping and Women's Barrels. Prize money in the amount 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 costs associated with the rodeo were tremendous and ticket sales would probably not be sufficient to cover the costs, the rodeo committee sent letters to local businesses soliciting contributions in exchange for various sponsorships. Exhibiting Sponsorships are $1,000 to exhibit products or services, while Major Sponsorships are $600, and Chute Sponsorships are $500 to have the name of the sponsor's business on one of the six bucking chutes. For a contribution of $100, individual sponsors will be included in a Friends of Rodeo list found in the rodeo programs. 

A local youth group will be contacted to provide concessions to the public and divide the profits with the Circular Club. The Auburn Circular Club Pro Rodeo Roundup will be held on June 1, 2, and 3. The cost of an adult ticket is set at $8 in advance or $10 at the gate; the cost of a ticket for a child 12 or younger is set at $6 in advance or $8 at the gate. Tickets are not date-specific. Rather, one ticket will admit an individual to one performance of his or her choice-- Friday, Saturday, or Sunday. The rodeo committee is able to secure a location through the county supervisors' board at a nominal cost to the Circular Club. The arrangement allows for the use of the county fair grounds and arena for a one-week period. Several months prior to the rodeo, members of the rodeo committee were notified the bleachers at the arena would hold 2,500 patrons. On Saturday night, paid attendance was 1,663, but all seats were filled due to poor gate controls. Attendance was 898 Friday and 769 on Sunday. 

The following revenue and expense figures relate to the first year of the rodeo. 

Receipts

Contributions from sponsors   $22,000

Receipts from ticket sales    $28,971

Share of concession profits    $1,513

Sale of programs              $600

Total receipts              $53,084

Expenses

Livestock contractor         $26,000

Prize money               $21,000

Contestant hospitality         $3,341*

Sponsor signs for arena       $1,900

Insurance                  $1,800

Ticket printing               $1,050

Sanctioning fees              $925

Entertainment                $859

Judging fees                 $750

Port-a-potties                 $716

Rent                       $600

Hay for horses                $538

Programs                    $500

Western hats to first 500 children   $450

Hotel rooms for stock contractor    $325

Utilities                      $300

Sand for arena                 $251

Miscellaneous fixed costs                 $105

Total expenses                      $61,410

Net loss                           $ (8,326) 

*The club contracted with a local caterer to provide a tent and food for the contestants. The cost of the food was contingent on the number of contestants each evening. Information concerning the number of contestants and the costs incurred are as follows: 

                                   Contestants                  Total Cost

Friday                                68              $998

Saturday                           96                        $1,243

Sunday                83             $1,100

                                                                       $3,341 

On Wednesday after the rodeo, members of the rodeo committee met to discuss and critique the rodeo. Jonathan Edmunds, CPA and President of the Circular Club, commented that the club did not lose money. Rather, Jonathan said, "The club made an investment in the rodeo." The rodeo committee has requested an analysis of the rodeos performance and evaluation of the CPA's review.

Question

• Shelley has just learned you are calculating the break-even point in dollars of ticket sales. She is still convinced the Club can make a profit using the assumptions above (second bullet point above).
• Calculate the dollars of ticket sales needed to earn a target profit of $6,000.
• Calculate the dollars of ticket sales needed to earn a target profit of $12,000.
• Are the facilities at the fairgrounds adequate to handle crowds needed to generate ticket revenues calculated above (third bullet point above) to earn a $6,000 profit? Show calculations to support your answers.