Enhancing Revenues from Malcor College Jamboree Malcor College is facing a challenge common to regional colleges and universities in the past twenty years declining enrollments. Where twenty years ago, average on campus enrollment was about 15,000 students, last years on campus enrollment was only 11,000. Access to a wide variety of on-campus activities is important at a small, rural midwestern college like Malcor the adjacent town is small and does not support the wide range off-campus activities and services to which many of the students have become accustomed. On-campus activities not only provide healthy, constructive ways for students to meet up and have fun, they can also provide additional revenues when enrollments are decreasing or stagnant, or when tuition increases are politically charged. One such event that has become particularly grand at Malcor has been the Fall Jamboree. In your mind, picture a small county fair without the animals or rides, and you might not too far off the afternoon consists of information booths to get students involved in student groups, giveaways from all the departments, along with ticketed carnival games and food vendors. It has been surprisingly successful, historically 80% of students attend Fall Jamboree! After 5pm, though, the student groups and department tables all closed down, and students start looking for other things to do. Fall Jamboree Night has by now turned into a big off-campus bar night, for students both over and under 21 years old. Over the summer, Rosanna Luchan, the activities director at Malcor College, was tasked with finding ways to shift those students back to the Fall Jamboree on campus to find constructive, legal ways for those students to join in and have fun, and maybe enhance some Malcor revenues at the same time. The Big Idea In early spring 2017, Rosanna went to a nightclub with friends she was visiting in Detroit. It was bizarre, what she saw in the nightclub was completely disconnected from what she could hear when she walked in. It looked like the party was lit the lights were going, people were laughing and dancing, so it looked like everyone was having a great time. But the room was strangely quiet, at least compared to the high-decibel music she was used to in a nightclub. Until, that is, she put on the same noise-canceling headphones everyone else was wearing and tuned in Thats right, Rosanna had stumbled on a silent rave, where music is broadcast via radio transmitter to wireless headphones worn by the participants, instead of being blasted over a speaker system. Picture hundreds of people, all wearing headphones, all moving together to the music. But quietly. Take off the headphones, and you can actually have a conversation with someone. Put on the headphones, and youre immersed in the sound. After that night, Rosanna kept thinking back to the silent rave. She had a lot of fun that night, and she kept wondering if this could be the solution she was looking for with the Fall Jamboree? Establishing the Parameters Rosanna quickly found that a silent rave in their college environment would have some differences from the nightclub where she first got the idea. Fall Jamboree is held outside in a field. In order to maintain control over the headphone equipment, and make sure no participants wandered off without turning in the headphones, they would have to establish a tented area for the silent rave. This means Malcor would have invest potentially tens of thousands of dollars to purchase tables, tent, headphones, transmitter, and other equipment if they decided to host a silent rave on an ongoing basis. In addition, Malcor would have to hire additional security officers to staff the rave. Obviously, Rosanna was concerned about making such a huge expenditure when she was not even sure how profitable this revenue stream would be profitability would be dependent on what proportion of Fall Jamboree attendees would stick around for the silent rave, and that was entirely unknown. Instead, Rosanna decided to try it out with a pilot program. Before making the decision on whether to purchase in the long-term equipment (i.e., the tables, tents, headphones, transmitter, and other equipment for the silent rave), Rosanna would rent that equipment for the first year to determine the usage, profitability, and identify any other unidentified problems that might arise. Rosanna contacted the Colleges Facilities Management team to identify a contractor that could provide the tents and tables needed for the silent rave. Facilities Management came back with a rental fee of $3,000. That initially seemed like a high price, but they explained they had difficulty finding ANY contractor that had availability for that particular date, since it was Homecoming weekend for another nearby college and the high school cross country team was hosting a major invitational. In any case, this rental fee would just be for the pilot program. If the silent rave were continued long-term, the College would instead consider purchasing this equipment. A second call to the campus security office quickly set the cost for additional security at the silent rave at $1,000. Finally, Rosanna gets to the fun part planning the rave. At a recent football fundraiser, Rosanna met a benefactor and alumni who is also the owner of a popular local rental company. They were so excited about the idea, they agreed to provide the headphones and transmitter for the pilot program at their normal cost - $1.50 per headphones used, and they threw in the cost of their staff to ensure the headphones worked according to plan. On a long-term basis for next year, though, they did mention their fees would increase slightly to $1.85 per headphones, and they could not guarantee that their tech support employees would be available to staff the Jamboree every year. Still, this sounded like a great deal to Roseanna, especially given the other costs involved. Roseanna planned to hold the pilot program on the first home game of the 2018 season, to give plenty of time to analyze any results and make decisions on long-term implementation for the following season. Results from the 2018 Pilot Program Unfortunately, there was a heavy rain on the afternoon of the Jamboree which led to an underwhelming 2018 Jamboree attendance of 7,200, despite the relatively flat enrollment of 10,000. They had 900 students attend the silent rave with an entrance fee of $5 each. The pilot program could be deemed a success if it provided administrators the necessary information to determine whether an investment in the necessary equipment (i.e., tents and tables) to host silent raves at the Fall Jamboree on an ongoing basis would be a profitable endeavor (or at least break even), regardless of the net profit or loss of the pilot program itself. The equipment purchase would not have to break even in a single year, since Malcor would expect to use the equipment for several years. However, students are notoriously fickle, so Roseanna would conservatively like to see such a program break even at least over a three year period. Again, given the advantageous pricing Roseanna has secured through the alumni rental company owner, Roseanna is not currently planning to purchase the headphones and transmitter needed to host a silent rave. Besides, tents and tables are multi-purpose items for the college, its a bit harder to imagine how they could repurpose that many headphones and transmitters. Rosanna wants another set of eyes on the financials for this highly visible decision. It could cost her more than just dollars and cents if she moves forward with this long-term investment in equipment if the silent rave ultimately turns out to be unprofitable.

1. Identify the costs associated with this 2018 pilot program, and how they should be categorized (e.g., fixed, variable). Assume that the cost object (X) is a set of headphones.

2. What was the net profit (or loss) of the 2018 pilot program?

3. What attendance would have been required for the pilot program to break even?

4. If Malcor did move forward with a long-term program of silent raves at the Fall Jamboree, how much could they budget for rave related equipment and still earn a profit over three years? Assume that 2018s enrollment would continue forward, the Jamboree attendance would match the historical 80% of enrollment, and the pilot program correctly identified the demand for the silent rave (based on the Jamboree attendance). Note: to answer this question, you will have to determine how the profit equation you wrote in requirement #2 will change for a long-term model.