Case Study Food and Beverages at Southwestern University Football Games Southwestern University (SWU), a large state college in Stephenville, Texas, 30 miles southwest of the Dallas/Fort SELLING VARIABLE PERCENT Worth metroplex, enrolls close to 20,000 students. The school ITEM PRICE/UNIT COST/UNIT REVENUE is the dominant force in the small city, with more students dur- Soft drink $1.50 $0.75 25% ing fall and spring than permanent residents. A longtime football powerhouse, SWU is a member of the Coffee 2.00 0.50 25% Big Eleven conference and is usually in the top 20 in college Hot dogs 2.00 0.80 20% football rankings. To bolster its chances of reaching the elusive Hamburgers 2.50 1.00 20% and long-desired number-one ranking, in 2010 SWU hired the legendary Bo Pitterno as its head coach. Although the number- Misc. snacks 1.00 0.40 10% one ranking remained out of reach, attendance at the five Satur- day home games each year increased. Prior to Pittemo's arrival, attendance generally averaged 25,000-29,000. Season ticket sales bumped up by 10,000 just with the announcement of the six booths for 5 hours at $7 an hour. These fixed costs will new coach's arrival. Stephenville and SWU were ready to move be proportionately allocated to each of the products based on to the big time! the percentages provided in the table. For example, the revenue With the growth in attendance came more fame, the need from soft drinks would be expected to cover 25% of the total for a bigger stadium, and more complaints about seating, park- fixed costs. ing, long lines, and concession stand prices. Southwestern Uni- Maddux wants to be sure that he has a number of things for versity's president, Dr. Marty Starr, was concerned not only President Starr: (1) the total fixed cost that must be covered at about the cost of expanding the existing stadium versus build- each of the games; (2) the portion of the fixed cost allocated to ing a new stadium but also about the ancillary activities. He each of the items; (3) what his unit sales would be at break-even wanted to be sure that these various support activities generated for each item-that is, what sales of soft drinks, coffee, hot revenue adequate to pay for themselves. Consequently, he dogs, and hamburgers are necessary to cover the portion of the fixed cost allocated to each of these items; (4) what the dollar wanted the parking lots, game programs, and food service to all sales for each of these would be at these break-even points; and be handled as profit centers. At a recent meeting discussing the (5) realistic sales estimates per attendee for attendance of new stadium, Starr told the stadium manager, Hank Maddux, to develop a break-even chart and related data for each of the 60,000 and 35,000. (In other words, he wants to know how centers. He instructed Maddux to have the food service area many dollars each attendee is spending on food at his projected break-even sales at present and if attendance grows to 60,000.) break-even report ready for the next meeting. After discussion with other facility managers and his subordinates, Maddux de- He felt this last piece of information would be helpful to under- stand how realistic the assumptions of his model are, and this veloped the following table showing the suggested selling prices, and his estimate of variable costs, and the percent rev- information could be compared with similar figures from previ- enue by item. It also provides an estimate of the percentage of ous seasons. the total revenues that would be expected for each of the items based on historical sales data. Discussion Question Maddux's fixed costs are interesting. He estimated that the 1. Prepare a brief report with the items noted so it is ready prorated portion of the stadium cost would be as follows: for Dr. Starr at the next meeting. salaries for food services at $100,000 ($20,000 for each of the five home games); 2,400 square feet of stadium space at $2 per Adapted from J. Heizer and B. Render. Operations Management, 6th ed. square foot per game; and six people per booth in each of the Upper Saddle River, NJ: Prentice Hall, 2000, pp. 274-275