Case #2: The Craddock Cup
In order to decide whether or not to keep the Craddock Cup, we needed to classify the expenses as either fixed and sunk or variable, fixed and sunk costs are not relevant so they are not included in the revised statement. Exhibit A shows an income statement that is revised in this manner (under the revised column). The first expense we found not relevant is the city field rental. We found that this expense is fixed, where $1,200 is allocated to this weekend, a cost that the Craddock Cup cannot avoid if decided to not keep the cup this year. Rivaldo's salary is also a fixed cost because even if the tournament were called off, Rivaldo would still be paid his allocated salary of $6,300. Finally, we found that the CYSL rent would be the final fixed cost, as it is a cost they cannot avoid if the Cup were canceled.
When we take these into account and remove them from the income statement, we find that the total revenue is $49,840 and the total profit is $6,502. With this, we would not get rid of the Craddock Cup, because we would be losing $6,502 of profit each year.
When we add 32 teams to the tournament, many of our expenses such as concessions and t-shirts double in size, as they are variable in nature, which means they depend on the number of participants. When adding 32 teams, we need to double our field space. Right now we are using 8 out of 10 available fields, so with double the teams we will need to use 16 fields. Since there are 10 available, we need to rent 6 extra fields, at $150 per field. This makes our additional field expense $900. We also need...