Question

Keswick Conference Center and Catering is a conference center and restaurant facility that hosts more than 300 national and international events each year attended by 50,000 professionals. Due to increased competition and soaring customer expectations, the company has been forced to revisit its quality standards. In the company’s 25-year history, customer demand has never been greater for high-quality products and services. Keswick has the following budgeted fixed and variable costs for 2013:


The company’s budgeted operating income is $ 4,200,000.
After conducting a survey of 3,000 conference attendees, the company has learned that its customers would most like to see the following changes in the quality of the company’s products and services: (1) more menu options and faster service, (2) more incidental products and services (wireless access in all meeting rooms, computer stations for Internet use, free local calling, and so on), and (3) upscale and cleaner meeting facilities. To satisfy these customer demands, the company would be required to increase fixed costs by 50% per year and increase variable costs by $ 12 per attendee as follows:
Customer support and service personnel ...... $ 4
Food and drink ............... $ 5
Conference materials ............. $ 0
Incidental products and services ........ $ 3
Keswick believes that the preceding improvements in product and service quality would increase overall conference attendance by 40%.

Required
1. What is the budgeted revenue per conference attendee?
2. Assuming budgeted revenue per conference attendee is unchanged, should Keswick implement the proposed changes?
3. Assuming budgeted revenue per conference attendee is unchanged, what is the variable cost per conference attendee at which Keswick would be indifferent between implementing and not implementing the proposedchanges?


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  • CreatedMay 14, 2014
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