Southwestern University (SWU), a large state college in Stephenville, Texas, 30 miles southwest of the Dallas/Fort Worth metroplex, enrolls close to 20,000 students. The school is the dominant force in the small city, with more students during the fall and spring semesters than permanent residents.

A longtime football powerhouse, SWU is a member of the Big Eleven conference and is usually in the top 20 in college football rankings. To bolster its chances of reaching the elusive and long-desired number-one ranking, in 2020 SWU hired a new head coach. Although the number-one ranking remained out of reach, attendance at the six Saturday home games each year increased. Prior to the new coach’s arrival, attendance generally averaged 25,000–29,000. Season ticket sales bumped up by 10,000 just with the announcement of the new coach’s arrival. Stephenville and SWU were ready to move to the big time!

With the growth in attendance came more fame, the need for a bigger stadium, and more complaints about seating, parking, long lines, and concession stand prices. Southwestern University’s president, Dr. Marty Starr, was concerned not only about the cost of expanding the existing stadium versus building a new stadium but also about the ancillary activities. Dr. Starr  wanted to be sure that these various support activities generated revenue adequate to pay for themselves. Consequently, Dr. Starr wanted the parking lots, game programs, and food service to all be handled as profit centers. At a recent meeting discussing the new stadium, Dr. Starr told the stadium manager, Haakem Malek, to develop a break-even chart and related data for each of the centers. Dr. Starr instructed Malek to have the food service area break-even report ready for the next meeting. After discussions with other facility managers, Malek developed the following table showing the suggested selling prices, an estimate of variable costs, and an estimate of the percentage of the total revenues that would be expected for each of the items based on historical sales data. 

Malek’s fixed costs are interesting. It is estimated that the prorated portion of the stadium cost would be as follows: salaries for food services at $300,000 ($60,000 for each of the six home games); 2,400 square feet of stadium space at $5 per square foot per game; and six people per booth in each of the six booths for 5 hours at $12 an hour. These fixed costs will be proportionately allocated to each of the products based on the percentages provided in the table. For example, the revenue from soft drinks would be expected to cover 25% of the total fixed costs. 

Malek wants to be sure that a number of things have been determined for Dr. Starr: 

(1) The total fixed cost that must be covered at each of the games; 

(2) The portion of the fixed cost allocated to each of the items; 

(3) What the unit sales would be at break-even  for each item—that is, what sales of soft drinks, coffee, hot dogs, hamburgers, and snacks are necessary to cover the portion of the fixed cost allocated to each of these items; 

(4) What the dollar sales for each of these would be at these break-even points; 

(5) Realistic sales estimates per attendee for attendance of 60,000 and 35,000. (In other words, Malek wants to know how many dollars each attendee is spending on food at the projected breakeven sales at present and if attendance grows to 60,000.) Malek felt this last piece of information would be helpful to understand how realistic the assumptions of the model are, and these figures could be compared with similar figures from previous seasons. 

Discussion Question 

Prepare a brief report for Dr. Starr that covers the items noted.

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ITEM Soft drink Coffee Hot dogs Hamburgers Misc. snacks SELLING PRICE/UNIT ($) 5.00 4.00 6.00 7.50 2.00 VARIABLE REVENUE COST/UNIT ($) (%) 25 25 20 20 10 1.50 1.00 2.00 3.00 1.00