Case Study for Southwestern University Food Service Revenue

Case Study for Southwestern University Food Service Revenue

Statement of Problem:

After moving to a larger stadium it is unknown if the revenue from concessions will turn a profit or be a loss for the stadium. I need to find the total costs, revenue for each item, and break-even point (BEP) for each item. Finally, estimate the revenue needed per attendee for concessions to break even.

Assumptions:

In preparing the break-even price for each item, the gross number of each item was modified to ensure real world reliability. E.g. because you cannot sell 8686.67 soft drinks, all gross numbers were normalized to whole numbers.

Soft drinks, coffee, and hot dogs were rounded up, while hamburgers and misc. snacks were rounded down.

Costs for each item and initial pricing point of each item has been set by Mr. Maddux as shown in Table 1.

Table 1 |   |   |

Pricing of Items |

  | Selling Price | Variable Cost |

Soft Drink | $1.50 | $0.75 |

Coffee | $2.00 | $0.50 |

Hot Dogs | $2.00 | $0.80 |

Hamburgers | $2.50 | $1.00 |

Misc Snacks | $1.00 | $0.40 |

Costs:

Fixed costs for operations include food preparation salaries, rental fees, and booth operation fees. As shown in Table 2, total fixed costs per game are $26,060.

Table 2 |   |   |

Total Fixed Cost |

Salaries for Food Services | 100,000 per season | $20,000 |

Stadium Rent | $2 per square foot | $4,800 |

Booth Employee Pay | 6 emp./booth at $7 an hour | $1,260 |

Total Fixed Cost | (100000/5)+(2400*2)+(6*6*5*7) | $26,060 |

Revenue Needed Per Item:

In order to recover the fixed expenses, a percentage has been assigned to each category of food. The total fixed cost was multiplied by the fixed cost percentage of each item to find the profit needed for each item to break even.

Table 3 |

Revenue |

  | Expected percentage of fixed cost | Portion of Fixed Cost to be Covered | Sales Needed to Break Even* | Total Revenue Needed to Break Even |

Soft Drinks...