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 fixed1 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 fixed4 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 | |||||
| Skeleton depreciation | 20,000 | Marketing | 100,000 | |||||
| Building lease | 20,000 | Maintenance | 80,000 | |||||
| Utilities | 40,000 | Skeleton depreciation | 10,000 | |||||
| Interest on debt | 40,000 | Building lease | 120,000 | |||||
| Utilities | 50,000 | |||||||
| 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 | |||||
| After-tax income | 174,000 | 247,500 | Fundraising | 100,000 | 200,000 | |||
| Govt. Grants | 200,000 | 100,000 | ||||||
| [Fundraising expenses] | (40,000) | (90,000) | ||||||
| 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 | ||||||
