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

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docx

Pages

2

Uploaded by AmbassadorComputerNarwhal3

Report
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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