Question
Alternatives available regarding holding the conference? Alternative: Net Income / (Net Loss) Continue with the conference -20,500 Reschedule the conference 25,400 Cancel -17,000 Proforma Income
Alternatives available regarding holding the conference? | |
Alternative: | Net Income / (Net Loss) |
Continue with the conference | -20,500 |
Reschedule the conference | 25,400 |
Cancel | -17,000 |
Proforma Income Statements for each alternative | |||
Continue with Conference: | Reschedule the Conference: | Cancel the Conference: | |
Expected Attendees | 10 | 100 (2%) | 0 |
SP per unit | 695 | 695 (90% of attendees) and 595 (reduced rate for 10% of attendees) | 0 |
Total Sales | 6950 | 68500 | 0 |
VC | |||
Meals (150 per attendee) | 1500 | 15000 | 0 |
Conference Materials (75 per attendee) | 750 | 7500 | 0 |
FC | |||
Direct Mail advertising | 6000 | 7500 | 6000 |
Meeting room rental | 9,500 * | 4500 | 10000 |
Equipment rental | 500 | 500 | 0 |
Speaker fees-Newton | 600 | 600 | 0 |
SF-Smith | 2000 | 2000 | 0 |
SF-Townsley | 4000 | 4000 | 1000 |
Speaker travel-Newton | 200 | 200 | 0 |
ST-Smith | 800 | 900 | 800 |
ST-Townsley | 1000 | 0 | 0 |
ST-Compton | 200 | 200 | 0 |
Net Income / (Net Loss) | -20,200 | 25,800 | -17,800 |
Adjusted Statement with eliminating avoidable costs from the calculation; showing only the relevant income/loss | |||
Continue with Conference: | Reschedule the Conference: | Cancel the Conference: | |
Expected Attendees: | 10 | 100 (2%) | 0 |
SP Per Unit: | 695 | 695 (90% of attendees) and 595 (reduced rate for 10% of attendees) | 0 |
Total Sales | 6950 | 68500 | 0 |
VC | |||
Meals (150 per attendee) | 1500 | 15000 | 0 |
Conference materials (75 per attendee) | 750 | 7500 | 0 |
FC | |||
Direct Mail advertising | 0 | 1500 | 0 |
Meeting room rental | 9500 | 4500 | 10000 |
Equipment rental | 500 | 500 | 0 |
Speaker fees - Newton | 600 | 600 | 0 |
SF-Smith | 2000 | 2000 | 0 |
SF-Townsley | 3000 | 3000 | 0 |
Speaker Travel -Newton | 200 | 200 | 0 |
ST-Smith | 0 | 100 | 0 |
ST-Townsley | 1000 | 0 | 0 |
ST-Compton | 200 | 200 | 0 |
Net Income / (Net Loss) | -12300 | 33400 | -10000 |
For Anna and Ethan, they have several options for what to do about the conference. In the most extreme case, they can cancel the conference which will result in a financial loss of roughly $17,000 as well as a reputational black mark. In less extreme cases they can reschedule the conference which will still incur a financial loss. Finally, the other option they have is to continue with the conference as is and wait until after the conference is over to see where the finances land. The biggest financial factor that they need to watch for is the unavoidable costs that they have incurred. Their biggest cost so far is direct mail advertising which has cost them $6000 along with the payment towards speaker Townsley of $1000. In my advice, each option has pros and cons. If you were to hold the conference as scheduled the pros are that no additional fees would be incurred. There's no need to pay a cancellation fee, there's no need for more mailing inserts, and the travel expenses have already been planned out. the cons are that due to low attendance the expected revenue is not ideal. To cancel the conference is going to have more cons than pros as there will be additional fees associated with the cancellation such as the nonrefundable speaker's fee, the $10,000 for a meeting room fee as well as the direct labor input into the planning of this event.
My advice to Flagstone is to reschedule the conference and accept the cancellation fee and the required new advertising mail inserts as the loss that they are. Rescheduling is the only option that there is still a chance of not losing significant money. By rescheduling, they can increase their revenue with the potential of offsetting those additional fees. Overall, this conference should be seen by Flagstone as a learning experience. Although the planning and the financials showed that the numbers were doable doesn't mean that the event was planned well. Other factors need to be looked at such as marketing material that would have garnered larger interest in attendance as to offsets the cost with the increase in revenue. I recommend that they reevaluate their planning practices and look to better understand the full scope of how they plan and execute events before entering deals with businesses and incurring a loss.
Reference:
Davis, C. E., & Davis, E. (2020). Managerial accounting (4th Edition). John Wiley & Sons, Inc.
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Please JUSTIFY or agree/disagree with the writer or answer the ABOVE. And please mention if you are justifying,agreeing,disagreeing or answering the above.
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