case study 2 mba 620 (1)
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School
Central Michigan University *
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Course
620
Subject
Industrial Engineering
Date
Dec 6, 2023
Type
docx
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2
Uploaded by AmbassadorComputerNarwhal3
1
To: Rosanna Luchan, Athletic Director
From: Joseph Eades, Consultant
Date: November 12, 2023
Subject: Analysis of Beer Sales Pilot Program
This memo was created to provide an analysis of the success and or failure of the beer sales pilot
program at Midwest College and whether the school should continue with a long-term program
of beer sales at home football games.
Costs of the Pilot Program
The costs of the pilot program can be categorized as fixed and variable. Fixed costs are those that
do not change with the number of beers sold, In this case would be the rental of the beer garden
equipment and the cost of security. Variable costs are those that change with the number of beers
sold, in this case the cost of the beer itself.
The following summarizes the costs of the pilot program:
Cost Amount
Category
Rental of beer garden equipment
Fixed
$9,000
Cost of security
Fixed
$2,000
Cost of beer
Variable
$1.55/pint can
Net Profit of the Pilot Program
The net profit of the pilot program can be calculated as follows:
In the pilot program, the revenue was $7,254, which is the number of beers sold (806) multiplied
by the price per beer ($9). The costs were $12,249.30, which is the sum of the fixed costs
($9,000) and the variable costs (806 *$1.55). Therefore, the net profit of the pilot program was
-
$4,995.30
Break-Even Attendance
The break-even attendance is the number of attendees at a game that would generate enough
revenue to cover the costs of the beer sales program.
During the pilot program, the break-even attendance was 1,302 meaning that if there were 1,302
people in attendance at the game, the revenue from beer sales would be enough to cover the costs
of the program.
Long-Term Beer Sales Program
2
If Midwest College decides to continue with this long-term program of beer sales at all of the
home football games, they will need to decide how much they would need to budget for the
equipment. The budget amount will determine how much profit they would make.
The revenue from the long-term program will be the same as the revenue from the pilot program,
assuming that the same number of beers are sold. The costs from the long-term program will be
the same as the variable costs from the pilot program, plus the fixed costs for the long-term
program. The fixed costs for the long-term program will depend on whether the Midwest College
decides to purchase or rent the beer garden equipment. If they purchase the equipment, the fixed
costs will be higher than if they rent the equipment. Assuming that the College purchases the
beer garden equipment, the amount they can budget for the equipment and still earn a profit over
a six-game season is $48,037.6. This comes from:
Profit = (6,448 × $9) - (6,448 × $1.55) = $48,037.6
This means that the College could budget up to $48,037.6 for beer garden equipment and still
earn a profit over a six-game season.
Conclusion
The pilot program was not profitable due to the net profit loss of -$-$4,995.30, but it did provide
some valuable information about the demand for beer at Midwest College football games. If the
College decides to move forward with a long-term program of beer sales, they can expect to
make a profit if they budget up to $48,037.6 for beer garden equipment.
From,
Joseph Eades (Consultant for Midwest College)
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