MAC 700: Target Costing- CPI Case Study

PREPARED FOR: PROF. DATIN DR. SUZANA SULAIMAN

GROUP PRESENTATION: ILI FARHANA BT ISHAK 2011852284 RAMSIAH BT ISMAIL 2011853756 SITI MAZIDAH BT HANIF 2011420726 WAN AINUL ASYIQIN BT WAN 2011299418 MOHD RAZALI

Pricing Decision
Price each function separately vs Charge one single flat fees
(with 3 alternatives) $325 $300 $275
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BUDGET = $330,000
To cover the following expenses:
Promotional brochures Fees and expenses for 20 speakers Equipment rental for presentations The travel and expenses of 25 staff Consultant fees Volunteer expenses *Exclude hotel charges i.e. meeting rooms, luncheons, banquets and receptions.
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FUNCTION

ATTENDEES (2,000)

SEPARATE PRICE

Separate Price
TOTAL REVENUE
AXB 100,000

HOTEL CHARGE
TOTAL VARIABLE COST

A B Registration fee 100% - 2000 $50

None

None

Reception

100% - 2000 Free

Free
Free 72,000 84,000

$25/attendee
$2,000 for meeting hall $25/attendee $200/room @ $1200 in total $2,000 for meeting hall $200/room @ $1200 in total $30/attendee

Annual meeting 100% - 2000 Free Keynote luncheon Six concurrent session Plenary session 90% - 1800 $40 70% - 1400 $60

(2000 x $25) =50,000 Free professional

(1800 x $25) =45,000 Free professional

70% - 1400 $50

70,000

Free professional

Six workshops
Banquet TOTAL

50% - 1000 $100

90% - 1800 $50

100,000
90,000 516,000

Free professional
(1800 x $30) =54,000 $149,000
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CM= Total Revenue Total cost ; $516,000 ($330,000 + $149,000 ) = $ 37,000

SINGLE FLAT FEE $325....

ATTENDEES= 1600 people
FUNCTION Registration fee Reception Annual meeting Keynote luncheon Six concurrent session Plenary session Six workshops Banquet HOTEL CHARGE None $25/attendee $2,000 for meeting hall $25/attendee $200/room @ $1200 in total $2,000 for meeting hall $200/room @ $1200 in total $30/attendee $25 x 1600 CALCULATION TOTAL VARIABLE COST None $40,000 Free professional $25 x 1600 $200 x 6 $40,000 $1200 $2000 $200 x 6 $30 x 1600 $1200 $48,000 $132,400

TOTAL

Total Revenue = $325 x 1,600 = $ 520,000 Total Attendees stay in hotel = 60% x 1600 = 960 people Contribution Margin = $520,000 $330,000- $132,400 = $ 57,600

SINGLE FLAT FEE $300....

ATTENDEES= 1750 people
FUNCTION Registration fee Reception Annual meeting Keynote luncheon Six concurrent session Plenary session Six workshops Banquet HOTEL CHARGE None $25/attendee $2,000 for meeting hall $25/attendee $200/room @ $1200 in total $2,000 for meeting hall $200/room @ $1200 in total $30/attendee $25 x 1750 CALCULATION TOTAL VARIABLE COST None $43,750 Free professional $25 x 1750 $43,750 Free professional Free professional Free professional $30 x 1750 $52,500 $140,000

TOTAL

Total Revenue = $300 x 1,750 = $ 525,000 Total Attendees stay in hotel = 60% x 1750 = 1050 people Contribution Margin = $525,000 $330,000- $140,000 = $ 55,000

SINGLE FLAT FEE $275....

ATTENDEES= 1900 people
FUNCTION
Registration fee Reception Annual meeting Keynote luncheon Six concurrent session Plenary session Six workshops Banquet TOTAL TOTAL VARIABLE COST None $47,500 Free professional $25 x 1900 $47,500 Free professional Free professional Free professional $30 x 1900 $57,000 $152,000

HOTEL CHARGE
None $25/attendee $2,000 for meeting hall $25/attendee $200/room @ $1200 in total $2,000 for meeting hall $200/room @ $1200 in total $30/attendee

CALCULATION

$25 x 1900

Total Revenue = $275 x 1,900 = $ 522,500 Total Attendees stay in hotel = 60% x 1900 = 1140 people Contribution Margin = $522,500 $330,000- $152,000 = $ 40,500
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Price separately

$325
1,600

$300
1,750

$275
1,900 $522,500 $330,000

Summary of the analysis

Attendees (person) Total Revenue ($) Fixed Expenses Hotel Charges: Var. cost (per attendee) -Reception -Keynote -Banquet Total Variable Cost Fixed cost (meeting hall/ room) -Annual Meeting -Concurrent -Plenary -Workshop Total Fixed Cost Contribution Margin

2,000

$516,000 $520,000 $525,000 $330,000 $330,000 $330,000

50,000 45,000 54,000

40,000 40,000 48,000

43,750 43,750 52,500

47,500 47,500 57,000 $152,000 Free Free Free Free 0 $40,500 8

$149,000 $128,000 $140,000 Free Free Free Free 0 $37,000 Free 1,200 2,000 1,200 4,400 $57,600 Free Free Free Free 0 $55,000

MEMO To: President, Computer Professionals Institute (CPI) Re: Recommendation of A Single Flat Fee for Entire Convention From: Team TC

As proposed by Annual Convention Committee, we recommend CPI to use the single flat fee of $325 for the entire convention rather than price each function separately as practised before. According to our analysis, CPI can reach its contribution margin by $37,000 if pricing separately for each function; $57,600 if choosing flat fee of $325; $55,000 if choosing flat fee of $300; and $40,500 if choosing flat fee of $275. CPI can get more on contribution margin using any of the single flat fee as compared to separate pricing for each function. We based our analysis on target costing approach where we determine the price at which participants are willing to pay to attend this convention. As CPI has approved the total budget for this convention excluding all hotel charges of $330,000. We strongly proposed single flat fee pricing of $325 even though it is the highest price among the other two options. It is due to the maximum contribution margin we can obtain after deducting the cost and hotel charges incurred. Thank you.
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THANK YOU

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