The following revenue and expense figures relate to the first year of the rodeo.
ID: 2438416 • Letter: T
Question
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
Break-even point in Dollars is fixed cost / contribution margin ratio
Since the variable is at 4% total revenue, the contribution margin ratio is 96% or .96
$51,000/ .96 = $53,125
Contributions from sponsors = $25,600
Amount from ticket sales for break-even = $27,525
Compute the break-even point in dollars of ticket sales assuming Adrian and Jonathan's assumptions are correct as given in the case. This requirement is to calculate break even in dollars. The amount you calculate will be from all sources of revenue including contributions from sponsors. The requirement is for ticket sales only. Contributions from sponsors is stated in the case as $25,600. As an example, let's say that using the break even formula you calculate break even in dollars as $60,000. This is not the answer for the requirement. You need the amount of ticket sales which would be the $60,000 less $25,600 or $34,400 in ticket sales. It is critical that you account for the contributions from the sponsors. The rest of the case deals with ticket sales revenue. If you don't calculate ticket sales correctly, all of the other case answers you get will be wrong.
Note: The case states that variable costs are 4% of total revenue. What must the contribution margin ratio be if variable costs are 4% of total revenue?
Section 2
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 $6,000 profit? Show calculations to support your answers.
Explanation / Answer
Break even sales
Amount ($)
Fixed costs:
Livestock contractor
26,000.00
Prize money
21,000.00
Sponsor signs for arena
1,900.00
Insurance
1,800.00
Judging fees
750.00
Rent
600.00
Programs
500.00
Miscellaneous fixed costs
105.00
52,655.00
Contribution margin
0.96
Breakeven point (Fixed costs / Contribution margin ratio)
54,848.96
Less: Contribution from sponsors
22,000.00
Break-even point in Dollar sales
32,848.96
Ticket sales needed to earn profit $6,000
(Fixed costs + desired profit) / Contribution margin ratio
Ticket sales needed to earn profit $6,000 (52655 +6000)/96%
58,905.00
Less: Contribution from sponsors
22,000.00
Ticket sales needed to earn profit $6,000
36,905.00
Ticket sales needed to earn profit $12,000
(Fixed costs + desired profit) / Contribution margin ratio
Ticket sales needed to earn profit $6,000 (52655 +12000)/96%
65,155.00
Less: Contribution from sponsors
22,000.00
Ticket sales needed to earn profit $6,000
43,155.00
Break even sales
Amount ($)
Fixed costs:
Livestock contractor
26,000.00
Prize money
21,000.00
Sponsor signs for arena
1,900.00
Insurance
1,800.00
Judging fees
750.00
Rent
600.00
Programs
500.00
Miscellaneous fixed costs
105.00
52,655.00
Contribution margin
0.96
Breakeven point (Fixed costs / Contribution margin ratio)
54,848.96
Less: Contribution from sponsors
22,000.00
Break-even point in Dollar sales
32,848.96
Ticket sales needed to earn profit $6,000
(Fixed costs + desired profit) / Contribution margin ratio
Ticket sales needed to earn profit $6,000 (52655 +6000)/96%
58,905.00
Less: Contribution from sponsors
22,000.00
Ticket sales needed to earn profit $6,000
36,905.00
Ticket sales needed to earn profit $12,000
(Fixed costs + desired profit) / Contribution margin ratio
Ticket sales needed to earn profit $6,000 (52655 +12000)/96%
65,155.00
Less: Contribution from sponsors
22,000.00
Ticket sales needed to earn profit $6,000
43,155.00