Craddock Cup
ACCT 2301
Spring 2015
Professor Dinan
Christopher Doherty, Luiz Franciss, Sydney Campbell & Raul Concepcion
The Craddock Cup: Questions: Spring 2015
The purpose of this case is to illustrate the importance of understanding cost behavior in calculating the profit/contribution of the Craddock Cup. Within this context, the case asks whether the tournament should be continued, expanded or dropped. In addition, the case provides a vehicle to discuss allocation procedures and the concept of sunk costs. Finally, the case furnishes an opportunity to develop cost-volume-profit analysis within the context of relevant costs and revenues.
Questions:
1. In determining whether to keep or drop the Craddock Cup, review in detail the overhead expense allocations currently used by the CYSL. Should the overhead allocations be revised, eliminated or retained? What are the financial results to the profit/loss to CYSL of the existing (32 team) Craddock Cup with any adjustments to allocations? With this analysis, should the Craddock Cup be retained?
*Please see Figure 1.1 in Appendix for profit statement and relevant figures.
After looking at the numbers we decided to eliminate Rivaldo’s salary, we determined that the overhead expense allocations currently in place are not appropriate. The city field rent should be eliminated from the allocated costs as the soccer league will be renting the field regardless of whether or not the Craddock Cup occurs; it is a sunk cost. This also applies to the CYSL office rent and utilities, which will be used by the employees whether or not the tournament is held. We needed to revise the salary allocation, because we do not need to allocate Rivaldo’s salary to the Craddock Cup as it is not relevant. Thus, we only need to account for the $12,000 salary of Renee Jantsen, who works only on the Craddock Cup. Using that allocation method, our profit was $6,502 instead of the previously calculated $3,698 loss.
2.
Spring 2015
Professor Dinan
Christopher Doherty, Luiz Franciss, Sydney Campbell & Raul Concepcion
The Craddock Cup: Questions: Spring 2015
The purpose of this case is to illustrate the importance of understanding cost behavior in calculating the profit/contribution of the Craddock Cup. Within this context, the case asks whether the tournament should be continued, expanded or dropped. In addition, the case provides a vehicle to discuss allocation procedures and the concept of sunk costs. Finally, the case furnishes an opportunity to develop cost-volume-profit analysis within the context of relevant costs and revenues.
Questions:
1. In determining whether to keep or drop the Craddock Cup, review in detail the overhead expense allocations currently used by the CYSL. Should the overhead allocations be revised, eliminated or retained? What are the financial results to the profit/loss to CYSL of the existing (32 team) Craddock Cup with any adjustments to allocations? With this analysis, should the Craddock Cup be retained?
*Please see Figure 1.1 in Appendix for profit statement and relevant figures.
After looking at the numbers we decided to eliminate Rivaldo’s salary, we determined that the overhead expense allocations currently in place are not appropriate. The city field rent should be eliminated from the allocated costs as the soccer league will be renting the field regardless of whether or not the Craddock Cup occurs; it is a sunk cost. This also applies to the CYSL office rent and utilities, which will be used by the employees whether or not the tournament is held. We needed to revise the salary allocation, because we do not need to allocate Rivaldo’s salary to the Craddock Cup as it is not relevant. Thus, we only need to account for the $12,000 salary of Renee Jantsen, who works only on the Craddock Cup. Using that allocation method, our profit was $6,502 instead of the previously calculated $3,698 loss.
2.