Assignment #1: Budgeting for Movies (Worth 20 pts.)

Movies are expensive to produce and market. According to IMDb, the most expensive film on record is Pirates of the Caribbean: At Worlds End, with a total budget of $336 million. This movie and its budget were widely publicized prior to the premiere of the film, and moviegoers were eager to see the results of this massive movie budget.

Like other large projects, movies have budgets. Potential financiers look at the budget, the script, and other factors to decide whether to invest in the movie. Several categories of costs will be in a movies budget, including:

• Story rights
• Screenplay
• Producers and directors
• Cast
• Production costs
• Special effects
• Music

The typical file budget you read about in the press includes only expenses. The movie budgets released to the general public do not include estimated box office receipts or other revenue streams. In addition, movie budgets do not usually include marketing costs, which can be another 50% or more of the films publicized budget.

Producers and directors will frequently release budget figures for upcoming movies, and these budget figures will be reported in several news outlets. However, Los Angeles Times writer Patrick Goldstein states that everyone lies about their movie budgets. For example it was reported initially that The Avengers, a Marvel Studios file, had an overall budget of $170 million. Another source indicated that the budget for The Avengers was $260 million. Which one of these figures was the correct budget figure? No one outside of the management of the movie really knows.

Questions: (Each question is worth 5 pts.)

1. Budgeting for a movie can be challenging. Frequently, budget items change as the movie production progresses. If budgeting for a movie is difficult, why prepare a movie budget at all?

2. What reasons can a movie director have for misrepresenting the overall budget for a particular movie? Is misrepresenting a movie budget unethical? Do you think misrepresenting a movies total budgeted expenditures to the public harms anyone? Why or why not?

3. If a Hollywood movies box office number exceeds its production budget, then that movie makes a profit. From reading the information given in the case, do you agree with this statement? Why or why not?

4. Sometimes actors, directors, and producers are asked to take a lower salary up front and instead receive a percentage of the films overall gross profits (from box office receipts, DVD sales, and similar revenue streams). Why might the film company propose this arrangement? Why might the actors, directors, and producers accept this arrangement? Would this type of arrangement (lower salary up front with a percentage of the films gross profits later) make the budgeting process easier or more challenging? Why?

Assignment #2: Identify Ethical Standards Violated (Worth 10 pts.)

Requirement: Each ethical situation is worth 2 pts.

For each of the situations listed, identify and state the primary (competence, confidentiality, integrity, or credibility) and secondary standard (1 3 or 4 from the list beneath each primary standard) from the IMA Statement of Ethical Professional Practice that is violated. Refer to Exhibit P-6 on page 10 of your text for the complete standard.

1. When out with friends, Louise complains loudly about the budgeting process at her company. She feels the budgeting process is overly precise. She illustrates her point with specific numbers from the budget.

2. Allan is caught on video as he brags about illegally downloading software that he feels is overpriced. The video is uploaded to YouTube.

3. Jake, an accountant for Snow Films Company, builds some slack into the budget for the Human Resources (HR) Department so that the targets are easier to achieve. Jake is dating the manager of the HR Department.

4. Pearl is controller for Cloudy Fork Gardens. When she prepares the budgets for the upcoming year for upper management, she realizes that her department has higher costs than any other department. She aggregates the numbers with some other departments so that it is not obvious that her department is overspending.

5. Alfredo knows that the laws concerning credit card and debit card fees have changed in the past year but does not know what the changes are specifically. He does not investigate before preparing the cash budget.