The Warsaw Air Show A group of community enthusiasts think that an air show woul
ID: 2425592 • Letter: T
Question
The Warsaw Air Show
A group of community enthusiasts think that an air show would be a positive event for Warsaw, Indiana and greater Kosciusko County. The goal was an annual air show that would improve with each passing year and add value to the community. Financially, the objective was to break even in the first year and earn $10,000 in the second year. Once up and running, the goal was to earn an average of $25,000 per year. The annual surpluses would be available to reinvest in the air show and support other community activities.
The original group of enthusiasts added strategically to their number and formed an air show committee. The committee quickly determined that 1) appearance fees would be necessary to attract desirable aircraft, 2) parking and entry fees would be insufficient to cover the air show costs, and 3) thus, funds would have to be raised through sponsorships. Sponsorship levels were set at $100, $1,000, $2,000 and $5,000.
A local civic group agreed to provide concessions. Profits from the concessions will be split evenly between the air show and civic group.
The air show will take place on the third weekend in August, starting on Friday evening and ending on Sunday afternoon. Entry fees are $10 for adults and $5 for children 12-and-younger. Parking fees are $5 per vehicle.
During the first year of the air show attendance and parking were as follows:
Vehicles Parked
Adult Admissions
Children Admissions
Friday
800
1,000
225
Saturday
1,750
2,450
1,100
Sunday
625
775
180
Total
3,175
4,225
1,505
Below are revenue and expense figures for the first year of the air show:
Revenues
Sponsor contributions
$30,000
Parking fees
15,875
Entry fees
49,775
Concessions
4,200
Total revenues
$99,850
Expenses
Appearance fees
$35,000
Meals and lodging
7,200
Advertising
4,900
Insurance
8,250
Rent
9,300
Sanitation
5,100
Fuel
11,350
Printing
3,200
Parking and traffic control
7,800
Cleanup
4,350
Miscellaneous
2,950
Total expenses
99,400
Surplus
$450
Answer the following questions:
What will be the percentage increase in parking and entry fees to earn a profit of $10,000? To earn a profit of $25,000? Assuming this translates into a similar percentage increase in attendance, will there be potential capacity problems if the air show grounds can only accommodate 2,000 vehicles per day and 4,000 persons per day?
Prepare a budgeted income statement for next year based on the scenario sketched in part 5 above.
How are expenditures in year one relevant to the decision as to whether to continue the air show in year two?
Vehicles Parked
Adult Admissions
Children Admissions
Friday
800
1,000
225
Saturday
1,750
2,450
1,100
Sunday
625
775
180
Total
3,175
4,225
1,505
Explanation / Answer
Step 1) to find the percentage increase in parking and entry fees to earn a profit of $10,000
Particulars
1st year
2nd year
Profit
450
10,000
Add: cost
99,400
99,400
Total revenues
99,850
99,850
Less: fixed incomes
a)Sponsor contributions
30,000
30,000
b)Concessions
4,200
4,200
Income from other sourse
65,650
75,200
This 65,650 is distributed to parking and entry fees in the following ratio
Adults 10*4225
42250
48,396 (calculation part : 75200*42250 / 65650)
Child 5*1505
7,525
8,620 (calculation part : 75200*7525 / 65650)
Parking 5*3175
15,875
18,184 (calculation part : 75200*15875 / 65650)
Now, these amounts are divided by no of units, to get the increased values
i.e, for adults = 48396/4225 = 11.45
for Child= 8620/1505= 5.73
for Adults = 18184/3175 = 5.73
same procedure to be followed to earn a profit of $25,000
Particulars
1st year
2nd year
Profit
450
25,000
Add: cost
99,400
99,400
Total revenues
99,850
124,400
Less: fixed incomes
a)Sponsor contributions
30,000
30,000
b)Concessions
4,200
4,200
Income from other sourse
65,650
90,200
This 65,650 is distributed to parking and entry fees in the following ratio
Adults 10*4225
42250
58,050
Child 5*1505
7,525
10,340
Parking 5*3175
15,875
21,810
Now, these amounts are divided by no of units, to get the increased values
i.e, for adults = 58050/4225 = 13.74
for Child= 10340/1505= 6.87
for Adults = 21810/3175 = 6.87
step2:
Preparation of a budgeted income statement for next year based on the earned profit $10,000.
Revenues
Sponsor contributions
$30,000
Parking fees
18,184
Entry fees
57,016
Concessions
4,200
Total revenues
$109,400
Expenses
Appearance fees
$35,000
Meals and lodging
7,200
Advertising
4,900
Insurance
8,250
Rent
9,300
Sanitation
5,100
Fuel
11,350
Printing
3,200
Parking and traffic control
7,800
Cleanup
4,350
Miscellaneous
2,950
Total expenses
99,400
Surplus
$10,000
Step3:
Conclusion Part: here the expenses in year one plays a major role to take a decision in the 2nd year because the expenses in year 1 are near to the earned income that mean it’s almost near to the Breakeven point.
Breakeven point is the point where there will be no loss and no profit
If the expenses are high compare to incomes then the air show will incur losses.
Particulars
1st year
2nd year
Profit
450
10,000
Add: cost
99,400
99,400
Total revenues
99,850
99,850
Less: fixed incomes
a)Sponsor contributions
30,000
30,000
b)Concessions
4,200
4,200
Income from other sourse
65,650
75,200
This 65,650 is distributed to parking and entry fees in the following ratio
Adults 10*4225
42250
48,396 (calculation part : 75200*42250 / 65650)
Child 5*1505
7,525
8,620 (calculation part : 75200*7525 / 65650)
Parking 5*3175
15,875
18,184 (calculation part : 75200*15875 / 65650)
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