...EDUCATION Vol. 19, No. 4 November 2004 pp. 555–565 The ALLTEL Pavilion Case: Strategy and CVP Analysis Edward Blocher and Kung H. Chen ABSTRACT: The ALLTEL Pavilion case is intended for the undergraduate management accounting or cost accounting course and the M.B.A. management accounting course. It provides an excellent context in which to examine strategic issues in using cost volume profit (CVP) in a service business. Based on an actual entertainment pavilion, the case develops many factors unique to a service business and illustrates how pavilion management can use CVP analysis to determine which artists to attract and what kinds of contracts to have with these performers. The Pavilion has two types of customers (paying ticket holders and free ticket holders) and earns profits from three types of revenues (ticket revenues, concession revenues, and parking fees). The case requires you to identify the best strategy for different types of artists, conduct cost-volume-profit analyses, consider the strategic issues related to operating leverage and how this affects the choice of performer and contract, and assess pricing strategies. O ne day in early November, Pam Berg, Manager of the ALLTEL Pavilion, was reviewing the operating results for the year just completed in preparation for the executive board meeting the following Friday. While the year ended in the black, she was disappointed that the ALLTEL Pavilion failed to earn the budgeted profit goal. This was the...
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...TO: Pam Berg, Manager of the ALLTEL Pavilion FROM: Valentina Golman, Cost Accountant DATE: October 29, 2011 SUBJECT: ALLTEL’s Strategy and CVP Analysis As requested, CVP analysis of the ALLTEL Pavilion has been investigated. The focus of the investigation was on firm’s competitive strategy, operating results, negotiating contract fees with artists, earning budgeted profit goals. Findings: 1. In response to the competitive strategy of the ALLTEL Pavilion * it is noted to be differentiation. The firm positions and distinguishes itself from its competitors by providing high end experience to its customers. The unique value of the product would be: advanced technology, no bad seat in the house, beautiful settings, wonderful atmosphere, outstanding parking and food concession services. * The critical success factors for the Pavilion are being the only outdoor venue in the area, educate parking, excellent up keep, clean facilities, well maintained grounds, customer’s opportunity for reserving VIP (A) seats for the year, advanced technology, following current trends and hiring local, regional and national artists. 2. Below are completed cost-volume-profit analyses. In order to get correct number of tickets that The ALLTEL Pavilion must sell to break even we have to consider two types of customers, in this case paying customers and comp ticket customers, where the second group brings in revenue only for ancillary services. For revenue brake down refer to...
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...333- ACC Section C The ALLTEL Pavilion Case Strategy and CVP Analysis 1. How would you describe the competitive strategy of the ALLTEL Pavilion? Given the firm's strategy, what are the most important Key Performance Indicators (e.g., quantitative measures) for the Pavilion to track and manage if it is to achieve its goal of continuous annual growth in operating income? ALLTEL Pavilion is operated by SFX Entertainment in an outdoor atmosphere for its customers. ALLTEL attempts to create a competitive advantage as the major outdoor concert venue in the "Triangle" area of North Carolina consisting of Raleigh, Durham, and Chapel Hill. The amphitheater has art-like acoustics and video differentiating the venue with trying to keep costs budgeted for each concert. The Key Performance Indicators are based on advertising media. They have researched on the most effective advertising in each region of the state in order to maximize ticket sales with the least advertising costs, which eventually create profitability. Other items include customer satisfaction, parking, and concessions. 2.) Complete two selected cost-volume-profit analyses for the show illustrated in Exhibit 2, the KFBS Allstars: A. How many tickets must the ALLTEL Pavilion sell to break even? (Hint: don't ignore the possibility that the attendance of Comp ticket holders affects the concert's profitability.). (4:1 sales mix tickets of paying : comp) Break-Even = $0 = 4x($40.08-$3.05) + 1x($13...
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...accurate budget and negotiating fair and reasonable contracts, the requested CVP analysis was performed. Although ALLTEL is aware the current system for negotiating contracts leads to budgeting troubles, this report details the exact shortcomings and provides recommendations to improve it, including a new system for paying the performing talent. The Pavilion has goals other than making the highest revenue possible, although they are still looking for 5% annual growth. ALLTEL wishes to achieve its desired earnings while maintaining a competitive edge against its competitors in the area. Being the only pavilion with outdoor seating gives it a unique advantage, but it needs to be careful not to underpay its performers or it will drive them away. Looking for a way to budget accurately, a target increase point was set to give a base to work off of in order to develop a formula. This increase point helped to find what price Alltel will break even from, and can further the process to find a price that will bring a profit. Included in the appendix is the formula used to find the break-even point. Modifying this formula can help to calculate the number of tickets that need to be sold, the price of the tickets, or the highest fixed fee that can paid for a show. These numbers vary widely based on the entertainer and the contract type used. Through using this formula, ALLTEL can determine specific numbers needed to earn its desired 5%. This percentage, like all the variables in the equation...
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...Chapter 9 Profit Planning: Cost-Volume-Profit Analysis Cases |9-1 |Cost-Volume-Profit Analysis and Strategy | |9-2 |Cost-Volume-Profit Analysis and Cost Estimation | |9-3 |Cost-Volume-Profit Analysis and Strategy | |9-4 |Cost-Volume-Profit Analysis and Strategy: The ALLTEL Pavilion | |9-5 |Sensitivity Analysis; Regression Analysis | |9-6 |Profit Planning: Choice of Cost Structure | |9-7 |Pancake World | Readings 9-1: “Tools for Dealing with Uncertainty” by David R. Fordham, CMA, CPA, Ph.D and S. Brooks Marshall, CFA. DBA This article explains how to use simulation methods within a spreadsheet program such as Excel to perform sensitivity analysis for a given decision context. The available spreadsheet simulation software systems include the programs Crystal Ball and @Risk, among others. These software systems allow the user to analyze the effect of uncertainty on the potential outcomes of a decision. These tools can be applied directly to CVP analysis...
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...Chapter 9 Profit Planning: Cost-Volume-Profit Analysis Cases |9-1 |Cost-Volume-Profit Analysis and Strategy | |9-2 |Cost-Volume-Profit Analysis and Cost Estimation | |9-3 |Cost-Volume-Profit Analysis and Strategy | |9-4 |Cost-Volume-Profit Analysis and Strategy: The ALLTEL Pavilion | |9-5 |Sensitivity Analysis; Regression Analysis | |9-6 |Profit Planning: Choice of Cost Structure | |9-7 |Pancake World | Readings 9-1: “Tools for Dealing with Uncertainty” by David R. Fordham, CMA, CPA, Ph.D and S. Brooks Marshall, CFA. DBA This article explains how to use simulation methods within a spreadsheet program such as Excel to perform sensitivity analysis for a given decision context. The available spreadsheet simulation software systems include the programs Crystal Ball and @Risk, among others. These software systems allow the user to analyze the effect of uncertainty on the potential outcomes of a decision. These tools can be applied directly to CVP analysis. The tools allow...
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...1) The competitive strategy of the ALLTEL Pavilion is largely focused on differentiation. With no substantial competitors in the geographic region, they are looking to create an “experience” for the audience and thus maintain the sustainability of the venue. They do this primarily through solid Marketing efforts. They are focused on the making the venue and each event as profitable as possible, by making it as highly visible as possible. Working within an established marketing budget of $20,000 per event, the team analyzes demographics, options, and potential ROI in order to make decisions about how to spend this money. Looking beyond each individual event, they are also looking to build visibility for the venue. However, in this case the strategy of differentiation should not work in a vacuum. Many experienced concert attendees may feel that the venue makes like difference to the experience that the performer brings. It is also wise to consider some cost leader strategies as well. This could be done through a more thorough look at ALLTEL’s SWOT analysis. They have an identified strength in how best to utilize available marketing funds and appear to have a solid process in place for overall execution at the events. However, have they adequately analyzed their opportunities? How many events do they secure each year? Are there substantial gaps? Would a marketing spend that exceeds $20,000 yield a greater return with certain events? Are the present ancillary vendors providing...
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