Reference no: EM13221389

Phil Keogan is considering a bid for the hotdog and softdrink concession at the 14 basketball games for the Cagayan Unigames. There will be seven college games and seven professional games. Average attendance at the college games is 30,000; at professional games attendance is 60,000. Phil estimates that he sells one hotdog and one softdrink for each two persons attending a game.

Revenue and cost data are as follows:
HOTDOG SOFTDRINK
Selling Price Php 15.00 (H) Php 10.00 (S)
Variable cost
Hotdog 3.20 (H)
Breadroll 1.40 (H)
Mustard, onion, etc. .20 (H)
Softdrink and ice 2.20 (S)

In addition, salespeople earn a 20% commission on all sales. Fixed cost per game are Php 80,000 for rentals of heating, cooking, mixing, and cooling equipment.
The stadium management requested that bids be made in the form of royalties on sales. The highest percentage of sales bid will win the contract.

REQUIREMENT
I. What percentage of sales can Keogan pay as royalty to the stadium and earn Php 1,800,000 for the season?
II. If Keogan bids 12% of sales, what income can he expect?
III. Assume that Keogan gets the concession at a royalty of 12% of sales. He wants to know how much margin of safety he has in two ways. He is uncertain about total attendance and about the percentage of total attendees who buy a hotdog and drink. What is the break-even point for the season, expressed as (a) total attendance assuming one hotdog and drink per two attendees, and (b) the percentage of attendees who must buy a hotdog and drink if total attendees is as expected but the number of hotdogs and drinks each buys is uncertain?
IV. What kinds of information does Keogan need if he is also deciding to bid for the concession at basketball games at the same stadium?
V. After forecasting attendance for basketball games, Keogan learns that the star player of the local professional team will retire before the coming season. What effect does this information have on his planning?