The Alltel Pavilion Case: Strategy and Cvp Analysis
The ALLTEL Pavilion Case: Strategy and CVP Analysis
Edward Blocher and Kung H. Chen
ABSTRACT: The ALLTEL Pavilion case is intended for the undergraduate management accounting or cost accounting course and the M.B.A. management accounting course. It provides an excellent context in which to examine strategic issues in using cost volume profit (CVP) in a service business. Based on an actual entertainment pavilion, the case develops many factors unique to a service business and illustrates how pavilion management can use CVP analysis to determine which artists to attract and what kinds of contracts to have with these performers. The Pavilion has two types of customers (paying ticket holders and free ticket holders) and earns profits from three types of revenues (ticket revenues, concession revenues, and parking fees). The case requires you to identify the best strategy for different types of artists, conduct cost-volume-profit analyses, consider the strategic issues related to operating leverage and how this affects the choice of performer and contract, and assess pricing strategies.
ne day in early November, Pam Berg, Manager of the ALLTEL Pavilion, was reviewing the operating results for the year just completed in preparation for the executive board meeting the following Friday. While the year ended in the black, she was disappointed that the ALLTEL Pavilion failed to earn the budgeted profit goal. This was the second year since Ms. Berg assumed the manager’s position at the ALLTEL Pavilion. After the somewhat disappointing first year, she was determined to exceed the budgeted profit in the coming year. While not all events developed exactly as expected at the time of preparing the budget for the year, there were no major surprises during the year. Yet, the operating results are below the budgeted goal. In addition, Pam was frustrated by the lack of clear guidelines for contract