Stampede Automotive Sound Systems puts on tent sales five to six times a year in various cities throughout Alberta. The tent sales are designed to show customers new products, engender enthusiasm about those products, and sell soon-to-be out-of-date products at greatly reduced prices. Each tent sale lasts one day and requires parking lot space to set up the Stampede semitrailer; a couple of show cars; a deejay playing music; and a tent to sell sound system merchandise, distribute brochures, and so on.
Last year, the Edmonton tent sale was held in a far corner of the parking lot outside the city exhibition hall where the automotive show was in progress. Because most customers were interested more in the new model cars than in the refurbishment of their current cars, foot traffic was low. In addition, customers did not want to carry speakers and amplifiers all the way back to where they had originally parked. Total direct costs for this tent sale were $14,300. Direct costs included gasoline and fuel for three pickup trucks and the semitrailer; wages and per diem for the five Stampede personnel who travelled to the show; rent on the parking lot space; and depreciation on the semitrailer, pickups, tent, tables (in tent), sound equipment; and the like. Revenue was $20,000. Cost of goods sold for the sound systems was $7,000.
Required:
1. How do you suppose Stampede accounts for the costs of the tent sales? What income statement items are affected by the tent sales?
2. What was the profit (loss) from the Edmonton tent sale? What do you think Stampede might do to make it more profitable in the future?