Financial Planning

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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