The Craddock Cup in its current form should be continued in order to maximize CYSL’s profits. Although it looks as though the Cup is incurring a loss, we need to analyze the relevant and irrelevant costs to truly determine the financial impact of discontinuing the cup. Although total expenses are $53,538, we need to eliminate the irrelevant, or unavoidable, costs when deciding whether the Cup should continue. In this case, the irrelevant, unavoidable costs include Rivaldo’s salary allocated to the tournament ($6,300), the field rental cost for the week ($1,200), and the rent/utilities expense for the Cup ($2,700). When these costs are added, we get $10,200 in sunk costs that cannot be avoided regardless of the continuation of the Craddock Cup. Subtracting these irrelevant costs from the total expenses of the tournament, we get $43,338 in relevant costs. When you subtract these expenses from the revenue generated by the tournament, we end up with a relevant profit of $6,502. This means that the CYSL is making $6,502 more than it would if it eliminated the Craddock Cup. I would therefore recommend that the Craddock Cup be continued. 2.
My answer to the first question would change if the alternative to holding the Craddock Cup would be to rent the field to the Harvest Fair for $6,750. From purely a financial perspective, renting the field to the Harvest Fair would make the most sense. By doing this, the CYSL can make a $6,750 profit, excluding the allocated costs that are unavoidable and irrelevant. This is $248 more than the $6,502 they would profit by actually holding the tournament. So strictly by financial terms, it would make more sense to rent out the field in order to generate an increase in profit of $248 over the alternative of hosting the Craddock Cup. 3.
When considering the decisions that management needs to make, it is important to consider not only the quantitative data, but also the qualitative characteristics. In this case, after...
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