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
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
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