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- 15 Marks
Question
Straight-to-Heaven Church is planning its annual camp meeting in December 2017. The church has four branches, and the annual camp meeting is the first major program after all the head pastors attended a leadership conference on the theme “Blending faith and Science in Church Decision Making.”
The General Overseer of the church wishes to apply the scientific principles learned at the conference in deciding between two major venues for the 2017 annual camp meeting. Hitherto, the General Overseer or his wife would veto where annual camp meetings are held. The following information is relevant for the decision:
- Seven pastors will facilitate the camp meeting. ‘Food 4 All’ restaurant will be assigned the responsibility of providing food for the pastors. They have indicated that a meal for a pastor would cost GH¢5. This cost is expected to increase by one-half if a pastor attends the camp with his wife. All pastors will be fed three times daily, but only three pastors plan to attend the conference with their wives. Church members will take care of their own feeding, but all camp expenses of pastors will be borne by church members.
- Water to be served at the camp meeting: 100 bags of sachet water at GH¢2 each and 25 boxes of 750ml bottled water at GH¢13 per box.
- The church plans to either have the conference at Ahayede (A) or Bonebon (B) camp sites. Accommodation cost per head per day at Ahayede is GH¢2 for the first 400 participants and GH¢1.5 for any additional participant. Bonebon will not charge any fee, but the church will have to show appreciation, which will be in the neighborhood of GH¢2,000 after the camp.
- Ahayede Campsite will require the payment of electricity and water bills of GH¢300 and GH¢500, respectively.
- It is expected that 96 liters of fuel at GH¢3.12 per liter will be needed at Bonebon campsite.
- Transportation cost for chairs and canopies will be GH¢400 if the camp is undertaken at Ahayede and GH¢300 if the camp is sited at Bonebon. Each church member’s transportation cost will be GH¢3 if Ahayede is chosen as the venue, but this figure is expected to double if the camp is taken to Bonebon.
- Pastors’ appreciation: Apart from the General Pastor, who will receive GH¢500, each pastor will receive GH¢300 as appreciation support.
- The church plans that 700 church members and pastors will take part in the annual camp meeting if it is undertaken at Bonebon, while 500 members will attend the camp if it is held at Ahayede, even though the two camp sites can each take 1,000 people. The camp will last for 5 days.
Required:
i) Using relevant costing, advise management of the church on the site they should hold the annual camp meeting.
(8 marks)
ii) Suggest TWO qualitative factors that should be considered in deciding on the venue. (4 marks)
iii) Explain the term “sunk costs” and identify THREE examples of sunk costs. (3 marks)
Answer
i) Relevant Costing for Ahayede and Bonebon Camp Sites:
| Cost Item | Ahayede (GH¢) | Bonebon (GH¢) |
|---|---|---|
| Food (7 Pastors × GH¢5 × 3 meals × 5 days) | 525 | 525 |
| Additional Food Cost (3 Pastors × 0.5 × GH¢5 × 3 meals × 5 days) | 112.50 | 112.50 |
| Water (100 bags × GH¢2 + 25 boxes × GH¢13) | 525 | 525 |
| Accommodation (500 participants × GH¢2/day × 5 days) | 5,000 | 2,000 (appreciation) |
| Utilities (Electricity + Water) | 800 | – |
| Fuel (96 liters × GH¢3.12) | – | 299.52 |
| Transportation of Chairs/Canopies | 400 | 300 |
| Transportation (Participants) (500 members × GH¢3/day) | 1,500 | 4,200 (700 members × GH¢6/day) |
| Pastors’ Appreciation | 2,300 | 2,300 |
| Total Cost | 10,912.50 | 10,262.02 |
Decision: The total cost for holding the camp meeting at Bonebon (GH¢10,262.02) is lower than that of Ahayede (GH¢10,912.50). Therefore, based on relevant costing, the camp meeting should be held at Bonebon.
(8 marks)
ii) Qualitative Factors to Consider in Deciding on the Venue:
- Safety and Security:
- The venue must ensure the safety and security of all participants during the camp meeting. This includes assessing the availability of security services and the overall safety record of the venue.
- Accessibility and Proximity:
- The location’s accessibility and proximity to the majority of participants should be considered. A venue that is easier and more convenient to reach may encourage higher attendance and participation.
(4 marks)
iii) Explanation of Sunk Costs and Examples:
Sunk Costs:
- A sunk cost is an expense that has already been incurred and cannot be recovered. Sunk costs should not be considered in future decision-making because they remain unchanged regardless of the outcome of a decision.
Examples of Sunk Costs:
- Marketing Study Cost:
- If a company spends GH¢50,000 on a marketing study for a product that later proves unviable, this GH¢50,000 is a sunk cost.
- Research and Development Expense:
- A company invests GH¢2,000,000 in developing a product that fails to generate sales. The GH¢2,000,000 is a sunk cost.
- Training Costs:
- If a company spends GH¢20,000 to train staff on a new system that is later abandoned, the training expense is a sunk cost.
(3 marks)
- Tags: Cost Analysis, Cost comparison, Decision Making, Event planning, Relevant Costing
- Level: Level 2
- Topic: Decision making techniques, Relevant Cost and Revenue
- Series: MAY 2017
- Uploader: Dotse