Friday June 15, 2012
Those of you who have been in one of my cost classes may recall 'my favorite problem', the annual Riverboat Funding Raising Project. The problem requires managerial accounting students to calculate the number of tickets required to break even which need to be sold for the Annual Riverboat Extravaganza. After we work the problem I remind the class that as college grads, they will probably end up involved in a non profit organization. Non profits are usually organized to help a charitable cause of have one or two as their signature events.
I remind students that there will always be someone in such an organization who will recommend what may be a 'far out' fund raising suggestion. Such suggestions need to be scrutinized with the break even analysis. Is this realistic? If we fail to break even will this project break us?
The Bankruptcy of the San Antonio Opera os a case om point. A concert by Placido Domingo at the ATT Center fell $300,000 short fo projections. In the bankruptcy proceeding which has followed, there are liabilities of $863,677 and assets of $1,500. Only 5,500 paying customers showed for the concert. In a final irony, Domingo himself is owed $50,500.
The director of the Opera Company blamed the economy but the concert was June 1, 2011, a full two years after the stock market lows of March 2009.
The problem here was that no one thought about the possibility of alternate outcomes. Tom Clancy and other action adventure writers make their fortunes by blending realistic alternate outcomes in to the fabric of society.
As the famous saying goes, what could go wrong? In this case, quite a bit. Managerial accounting offers the tools to avoid such debacles.
Was there really ever a market for Opera in San Antonio? Symphonies around the US have taken bankruptcy, opera is at best a derivative of a symphony. 5500 in a city of 1.3 million is .42% of the population.
