So your new accountant could practice the budgeting process in your for-profit company, you want her to compare budgeting methods for two different kinds of entities.
You give her information for a for-profit and for a nonprofit entity and ask her to complete the following:
- Given the assumptions and data in this Excel file:
- complete next year’s budgeted figures for each entity within the same Excel worksheet (yellow cells)
- include your reasoning for most of the budgeted figures (green cells)
Because of a bad recession, government grants were not cut by 50% but are eliminated completely for next year’s budget and fundraising efforts—despite an increase in expenses—did not improve at all.
- Write a memo of 300–400 words explaining what you would recommend that the museum manager do.
Assumptions For-Profit Nonprofit 1 20% of marketing expenses are
fixed; the rest are variable; all other expenses are fixed
1 Ticket sales are low because the
restricted government grants are to subsidize ticket prices just to children
12 and under.
2 Next year they
plan to double their fixed marketing expenses and as a result will increase
ticket sales by 25%.
2 It is expected
that total children and adult traffic will increase 25% as the result of
increased marketing expenses.
3 Gift shop sales
vary directly with ticket sales; gift shop COGS is 50% of sales but is
expected to grow to 55% of sales.
3 20% of marketing
expenses are fixed; the rest are variable; all other expenses are fixed
4 The adult:child
ratio of visitors will remain the same as this year.
5 The fundraising
effort will help pay for gift shop inventory such that COGS for the gift shop
will drop from 50% to 40%.
6 Gift shop sales
will continue to vary directly with ticket sales.
7 Next year they
plan to double their fixed marketing expenses, and as a result will increase
ticket sales by 25%.
8 To be able to
subsidize the increase ticket sales they will have to double fundraising to
$200,000. This will require an additional fundraising expense of $50,000
beyond this year’s level, plus
an additional $20,000 of salaries for additional headcount.
9 Due to the lower
tax revenue of the city government from the recession, the museum’s grant
will be cut by half.
|For-Profit Dinosour Museum||Nonprofit Dinosaur Museum|
|Income Statement||Statement of Activities|
|This Yr||Next Yr Budget||Reason||This Yr||Next Yr Budget||Reason|
|Ticket sales||$600,000||Operating revenues|
|Gift shop sales||200,000||Ticket sales||$100,000|
|Total sales||800,000||Gift shop sales||200,000|
|Total Operating Revenue||300,000|
|Salaries & benefits||100,000|
|Gift shop COGS||100,000||Operating Expenses|
|Marketing||100,000||Salaries & benefits||200,000|
|Maintenance||90,000||Gift shop COGS||100,000|
|Interest on debt||40,000||Building lease||120,000|
|Interest on debt||40,000|
|Total expense||510,000||Total operating expenses||700,000|
|Before tax income||290,000||Operating income||(400,000)|
|Tax @ 40%||(116,000)||(165,000)||Non-operating Revenue|
|Net non-operating revenue||260,000||210,000|
|Increase in net assets||(140,000)||(175,000)|
|Net assets at beg. of yr.||490,000||350,000|
|Net assets at end of yr.||350,000||175,000|