Craddock Cup Case

Topics: Income statement, Expense, Costs Pages: 10 (763 words) Published: November 13, 2014
Case #2: The Craddock Cup

3/21/13

In order to decide whether or not to keep the Craddock Cup, we needed to classify the expenses as either fixed and sunk or variable, fixed and sunk costs are not relevant so they are not included in the revised statement. Exhibit A shows an income statement that is revised in this manner (under the revised column). The first expense we found not relevant is the city field rental. We found that this expense is fixed, where $1,200 is allocated to this weekend, a cost that the Craddock Cup cannot avoid if decided to not keep the cup this year. Rivaldo's salary is also a fixed cost because even if the tournament were called off, Rivaldo would still be paid his allocated salary of $6,300. Finally, we found that the CYSL rent would be the final fixed cost, as it is a cost they cannot avoid if the Cup were canceled. When we take these into account and remove them from the income statement, we find that the total revenue is $49,840 and the total profit is $6,502. With this, we would not get rid of the Craddock Cup, because we would be losing $6,502 of profit each year.

When we add 32 teams to the tournament, many of our expenses such as concessions and t-shirts double in size, as they are variable in nature, which means they depend on the number of participants. When adding 32 teams, we need to double our field space. Right now we are using 8 out of 10 available fields, so with double the teams we will need to use 16 fields. Since there are 10 available, we need to rent 6 extra fields, at $150 per field. This makes our additional field expense $900. We also need two goals per additional field at $60 per goal, making our additional goal expense $720. There are also expenses that do not change when there are 32 additional teams in the tournament. The registration with the state is a fixed fee, and is not dependant on the number of participants. The tournament has an adequate number of soccer balls, so does not need to purchase any more for the tournament. There is not an increase in college scouts, so the hotel expense does not change. Although we add 32 teams, the face books only include high school students so this expense does not change. Marketing does not change since the middle school teams are correspondents to the high schools teams. And finally, Jansten's salary will remain the same because no matter how many people are in the tournament, Jansten gets paid a fixed salary. With these changes, we get total revenue of $85,680 and a total profit of $17,966. So, adding the additional 32 teams would be a profitable and smart move for the Craddock Cup.

When we add $1000 to marketing, 20 face books and 15 more college recruiters we have a different outcome, and would need to have a new registration fee in order to break even. The marketing expense would increase by $100. The face book expense would increase by $120 ($6 per book, 15 books), and the hotel expense for the recruiters would increase to $2,400 ($80 per night, 2 nights, 15 recruiters). When we add these expenses and divide them by 64 teams, we get an increase in registration fees by $55. This would bring us to a break-even point.

Exhibit A

EXPENSE CLASSIFICATION

CURRENT

REVISED

EXPANDED

Registration Fees

NA

NA

$9,440

$9,440

$18,880

T-shirts

NA

NA

4,800

4,800

9,600

Concessions

NA

NA

17,280

17,280

34,560

Soccer clinic

NA

NA

4,320

4,320

8,640

Contributions

NA

NA

14,000

14,000

14,000

_Total Revenue_

$49,840

$49,840

$85,680

T-shirts

Variable

Not Overhead

$1,920

$1,920

$3,840

Concessions

Variable

Not Overhead

8,640

8,640

17,280

Soccer clinic

Variable

Not Overhead

2,592

2,592

5,184

Player insurance

Variable

Not Overhead

2,304

2,304

4,608

Registration with state YSL

Fixed...
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