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.