WMBA 6050 Week 3 Cost-Volume-Profit Workup Example

$14.65 a Round Variable, $155,170 a Month Fixed and a Break-Even of 1,030 Rounds for Two Extra Weeks: A Cost-Volume-Profit Workup for a Golf Course Deciding Whether to Open in Early April

Student Name

Walden University

WMBA 6050: Accounting for Management Decision Making

Instructor Name

Month Day, Year

$14.65 a Round Variable, $155,170 a Month Fixed and a Break-Even of 1,030 Rounds for Two Extra Weeks: A Cost-Volume-Profit Workup for a Golf Course Deciding Whether to Open in Early April

The Question

The owner of Briar Hollow Golf Club, the composite public course used in this course, has asked whether the club should open on April 1 instead of April 15 next season. A neighboring course opened early last spring, and several regular golfers asked why Briar Hollow did not. Answering the question requires knowing which course costs rise with play and which do not, what each round contributes and how close the course runs to breaking even. This workup separates the costs first and then uses the results to test the early opening.

The analysis covers the golf operation only: green fees, cart fees and season passes on the revenue side, and course maintenance, cart, pro shop staffing and starter costs on the cost side. Food, beverage and banquets are treated separately in other weeks.

Splitting the Costs

Table 1

Monthly Rounds and Course Operating Costs, Last Season

Figures are composite; course operating costs exclude food, beverage, banquets, depreciation and interest.

Using the high-low method, the variable cost per round is the change in cost between the busiest and quietest months divided by the change in rounds: ($246,000 − $183,000) ÷ (6,200 − 1,900) = $63,000 ÷ 4,300 = about $14.65 per round. The fixed cost per open month is the remainder at either point: $246,000 − ($14.65 × 6,200) = about $155,170.

Because high-low relies on just the busiest and the slowest month, one odd month could distort it. Here, the line it produces predicts every other month within about $1,000, which is close enough to rely on. Datar and Rajan (2021) caution that cost behavior should be checked against all the observations, not only the two extremes, and against what managers know about how the costs arise. Both checks hold: variable costs per round include cart fuel and maintenance, range balls, scorecards, divot sand and the share of seasonal staff hours that rises with tee times, and they plausibly total around $15 a round. Fixed costs include the superintendent's crew, mowing, irrigation, chemicals and the full-time pro shop and starter staff, which do not change with a busy or slow week.

When the course is closed, from November through March, fixed costs fall to about $44,000 a month for security, equipment storage, a skeleton maintenance crew and insurance.

Contribution Margin and Break-Even

Green and cart revenue averaged $68.60 per round last season. Each round therefore contributes about $68.60 − $14.65 = $53.95 toward fixed costs.

Annual fixed course costs are seven open months at $155,170 plus five closed months at $44,000, about $1,306,000. Season passes, which do not vary with rounds, brought in $420,000, leaving about $886,000 of fixed cost to be covered by round-by-round contribution.

Break-even rounds = $886,000 ÷ $53.95 = about 16,420 rounds.

The course played 31,500 rounds, a margin of safety of about 15,080 rounds, nearly half of actual volume; that cushion is how far rounds could drop before the course stops covering its costs (Hilton & Platt, 2020). Over a full season, the golf operation covers its fixed costs comfortably. The early opening is a different question, because it adds fixed cost in exchange for a few weeks of uncertain, weather-dependent volume.

Testing the Early Opening

Opening on April 1 would add two weeks of open-season fixed costs in place of closed-season costs. The difference is ($155,170 − $44,000) ÷ 2, about $55,600, for crew, mowing, cart preparation, pro shop staff and starter coverage.

To break even on that cost, the first two weeks of April would need $55,600 ÷ $53.95 = about 1,030 rounds.

Table 2

Early Opening: Required and Likely Rounds

Likely rounds are estimates from last season's late-April play and the neighboring course's reported early-April volume; composite figures.

Last year Briar Hollow played 2,100 rounds in the second half of April, when the weather is milder and the course is in better shape. Reaching 1,030 rounds in the first half is possible in a mild spring but unlikely in a typical one. If the three scenarios were equally likely, the expected result would be a loss of about $12,400, and the worst case loses almost four times what the best case gains.

A Weather-Contingent Alternative

The numbers suggest the choice should not be made in the fall. Most of the added fixed cost, crew hours, cart preparation and pro shop staffing, can be committed as late as mid-March. The club could set a rule: open April 1 only if, by March 15, the ground has thawed and the two-week forecast shows daytime highs mostly above 50 degrees. In a mild spring the club captures the gain; in a cold one it avoids the loss. The only cost of waiting is that the opening date cannot be advertised in advance.

A smaller version is also available. Opening the front nine only, walking only, with a reduced crew, would add perhaps $20,000 in fixed cost. A nine-hole walking round at $26 with variable costs near $5, since carts are not used, contributes about $21, so break-even would be about 950 nine-hole rounds, which is not much easier to reach.

Recommendation

Keep April 15 as the advertised opening, and adopt the March 15 weather rule for opening on April 1. In the meantime, open the driving range on April 1, which needs one attendant, sells range balls with high contribution and keeps regulars connected to the club before the course opens. Garrison et al. (2021) note that cost-volume-profit analysis is most useful precisely for this kind of question, where a fixed cost is added in exchange for uncertain volume, and here it shows that the decision depends less on the cost than on the weather.

References

Datar, S. M., & Rajan, M. V. (2021). Horngren's cost accounting: A managerial emphasis (17th ed.). Pearson.

Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2021). Managerial accounting (17th ed.). McGraw Hill.

Hilton, R. W., & Platt, D. E. (2020). Managerial accounting: Creating value in a dynamic business environment (12th ed.). McGraw Hill.