Craddock Cup
INTRODUCTION
This memorandum will assess the four alternatives regarding the future of the Craddock Cup (the “Cup) by analyzing the costs directly attributable to the tournament. The four alternative are: to eliminate the tournament (Option 1), to keep the tournament (Option 2), to expand the tournament (Option 3) or to expand the tournament with increased marketing (Option 4). Based on the analyses and the projected profit generated by the Craddock Youth Soccer League (CYSL) for each option, this memorandum will provide a recommended course of action.
GENERAL DISCUSSION OF COSTS
CYSL allocates $21,000 of its costs to the Cup. However, Rivaldo’s allocated salary of $6,300 and the allocated rent of $2,700 should not be allocated to the Cup because these costs have to be paid by CYSL regardless of whether the Cup is organized. For the same reason, the rental of the ten city fields of $1,200 should not be allocated. However, Jansten’s salary of $12,000 should be allocated to the cup as she spends 100% of her time on the Cup and would not be employed with CYSL if the Cup were no longer organized.
The costs associated with the Cup can be further divided into fixed costs and variable costs. Fixed costs do not change with the number of teams and it includes marketing and advertising, Jansten’s salary and the registration wit the state Youth Soccer League (YSL). Variable costs depend on the number of teams participating in the Cup. This memorandum assumes that the maximum number of teams participate in the competition in order to compute the projected profit that each option will bring.
ANALYSIS AND ASSESSMENT OF ALTERNATIVES
Decision to drop or keep the Craddock Cup
If the Craddock Cup is dropped, the projected profit will be $0 (see Exhibit A). There will be no losses incurred because there are no sunk costs relevant to the Cup. No advertising and registration will be needed, and Jansten’s services will not be needed as well.
Should the Craddock Cup continue to be organized, the projected true operating profit is $6,502 after adjusting for the overhead costs that are not relevant to the Cup (see Exhibit B). This profit is higher than the $6,000 expected by the CYSL to fund the field-acquisition program and proves that the Cup is in fact earning money for CYSL. Hence, before taking the possible expansion of the Cup into account, the Cup should not be dropped as it meets the target set by the board of CYSL.
Decision