Question

Case Question 8-32 It had been a quiet Monday morning for Anna Hogue, senior project manager at Flagstone Consulting. Everything seemed to be falling into place for the company's first conference, Healthcare Management in the New Millenium," scheduled for October 11 and 12 in Boston. Then Ethan Tang, the staff consultant in charge of registration, stuck his head in the door "Anna," said Ethan, "I think we may have a problem with the conference. Only 15 people have registered. Our marketing consultants told us to expect at least a 3% registration rate from our direct mail campaign. Based on the 5,000 conference fliers we mailed, do you think another 135 people will register in the next three weeks?" Anna and Ethan had worked together to develop a budget for the conference, as follows. They had budgeted for registration response rates of 2%, 3%, and 496, but a response rate of 0.3% was far outside their expectations 2% Response Rate Total Per Attendee 3% Response Rate Total 4% Response Rate Total Per Attendee Per Attendee Registration fee revenue Expenses Meals Conference materials Direct mail advertising Meeting room rental Equipment rental Speaker fees: Newton Smith Townsley Speaker travel Newton Smith Townsley $59,500 $595 $89,250 $595 $119,000 $595 12,500 4,500 4,500 3,500 500 $125 18,750 6,750 4,500 3,500 500 $125 25,000 9,000 4,500 3,500 500 $125 45 45 45 600 2,000 4,000 600 2,000 4,000 600 2,000 4,000 200 1,200 1,000 1,200 1,000 200 1,200 1,000

Answer 1

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Only unavoidable cost is Direct Mail Advertising and Townsley Speaker Fee
As these costs have arleady incurred.
		Option 1	Option 2	Option 3
Operating Income in Requirement b		$ -16,325	$ -16,300	$ 36,040
Add back: Unavoidable cost
Direct Mail Advertising		$    4,500	$    4,500	$    4,500
Townsley Speaker Fee		$    1,000	$    1,000	$    1,000
Relevant Income/(Loss)		$ -10,825	$ -10,800	$ 41,540