below is the question and students response, reply to the students repsonse in 150 words
A local country club runs a very successful “19th Hole” that golfers frequent for a few drinks after a round of golf. The club also offers hot snacks to these golfers but the overhead of the food operation appears to be excessive. The new Golf Pro argues that the food operation should be discontinued because it is losing money and dragging down the net income of the club and thus affecting his bonus. As a management accounting student and a weekly golfer, what advice would you offer the Pro?
Based on the information provided, I would advise the new Golf Pro to consider the consequences of shutting down this segment outright.
Although the food coasts may be driving down net income, completely discontinuing this provision could dissuade the customers and potentially even lose loyal members of the club. The 19th Hole’s success obviously means that many members enjoy the food and social interactions that it provides. Losing members from dissatisfaction could cost the club more than what it is already losing in food costs and would create an even bigger problem.
An alternative to be considered would be to find another food processing company to buy raw ingredients from at a lower price. This would lower the cost of goods sold possibly without affecting sales and leading to a smaller loss. The club could also increase food prices and, together with this price increase, invest in ways to better market and/or prepare the food to incentivize the customers after the price increase. This could offset the increase in price ideally leading to a negligible drop in sales. Combine this idea with cheaper raw ingredients would equal a lower cost of goods, and higher net sales, resulting in a lower net loss and perhaps even net income.
I would say that they should continue to run the food operation.
As the case mentioned that the overhead of the food operation is excessive. However, drinking people tend to eat more after a few drinks. Discontinue the food operation might actually loss business.
Also, the golf pro is arguing discontinue the food operation solely based on his benefits. If the golf club really wants to make a decision on this, it should gather all the related information and make a proper analysis.