Break-Even Analysis

1.A local nonprofit helps low-income residents of the surrounding community prepare their taxes. For their first year of operation, they have secured a $450,000 grant. They plan to operate 6 days of the week for 48 weeks of the year, and anticipate preparing 1,200 tax forms (one for each client), spread evenly throughout the year. Rent and utilities will cost on average $6,500 per month, which they must pay year-round (i.e. 12 months per year). The executive director of the program earns a salary of $62,000 per year, plus benefits equal to 20% of her salary. The organization employs 5 tax preparers, each of whom is paid $225 per day. The nonprofit must pay $15 per client in filing costs to the IRS.

[Note: Round your numbers to TWO decimal places, e.g. 32.12]

A.How much must the organization charge each client if the goal is to break even? $____________

B.How much must the organization charge each client if the target profit is $250 per week? _______

C.Total fixed costs per week are: $_________

D.Increase in which of the following variables would result in your answer to part A) increasing _____?

1.Variable cost

2.Fixed Revenues

3.Quantity

Cost Allocation

2.Lerner College, a not-for-profit liberal arts college, charges the total cost of running its research library to its three academic programs: the humanities, the social sciences, and the sciences. Rent and utilities for the library space costs $30,000 per month. Salaries for the library's employees total $275,000 per year, plus an additional 24% for benefits. The depreciation on the library's office equipment is $32,000 each year. Other library expenses - including supplies, books, subscriptions - are equal to $14,000 per month. The total cost of running the research library is allocated to each of the three academic programs based on the number of students in each of the three programs. The humanities program has 440 students; the social sciences program has 390 students; the sciences program has 260 students. The teaching staff for the social sciences program earns $650,000 per year in salaries and benefits. In addition, the social sciences program consumes $9,500 of supplies each month, while the other two programs combined consume only $7,250 of supplies each month.

Fill in the following blanks:

[Note: Round your numbers to TWO decimal places]

A) Annual direct cost of running the social sciences program is: $_____________

B)Annual indirect costs allocated to the humanities program are: $ _______________

C) Annual indirect costs allocated to the social sciences program are: $ _____________

D) Annual indirect costs allocated to the sciences program are: $ __________________

E)Annual rent and utilities + depreciation expense = $ _______________

F) The cost per student of running the social sciences program is: $ ______________

G) The total cost to run the social sciences program is: $ __________________

Variance

3.During the winter months, the New York City department of Social Services purchases blankets for use at shelters throughout the city.In previous years, the department had purchased blankets for 15 different shelters at a price of $7.50 per blanket, expecting that each shelter would use 14 new blankets. The department budgeted a similar amount this year; however, at the end of the year they discovered that they had spent more on blankets than anticipated.They had actually spent $1,989, purchased 234 blankets, and provided blankets to 18 shelters.

Fill in the following blanks:

[Note: Be sure to indicate unfavorable variances with a negative sign, e.g. -54.67. Do not use parentheses. Round your numbers to TWO decimal places, e.g. 54.12.]

A)The volume variance is $ _________________

B)The quantity variance is $ _________________

C)The price variance is $ ____________________

D)Of the three variances you calculated, which one contributed the most to the total variance?

1. Volume Variance _______

2. Quantity Variance ______

3. Price Variance _______

Write the number corresponding to the correct option, i.e. 1 or 2 or 3

E) On average, how many blankets did each shelter actually get? __________

F) What was the actual average price of a blanket? ___________

Time Value of Money

4.Knowles College recently constructed a new academic building and is deciding whether it should lease or purchase the media equipment for its classrooms. If the College chooses to lease the equipment, it will be required to make annual payments of $50,000. The lease requires that payments be made at the beginning of each year for the duration of the lease, which is 7 years. If the College purchases the equipment, it will cost $315,000. In addition to the upfront cost, the equipment will require $19,000 in maintenance at the end of years 2, 4, and 6. The useful life of the equipment is estimated to be 7 years, at which point the College estimates it will be able to sell the equipment for $62,000. The College uses a discount rate of 4.25%.

Fill in the following blanks:

[Note: Write only POSITIVE numbers e.g. even if Excel gives you -253 or (253), write 253. Also, round your numbers to TWO decimal places e.g. 253.12]

A) Present value of the leaseoptionis: $

B)Present value of the purchase option is: $

C) Which option should Knowles College choose? ___ [Write 1 if "Lease", or 2 if "Purchase"]

D)Would your answer to part C) change if the discount rate is 3.5%?____ [Write 1 if Yes, or 2 if No]

Budgeting

5.Re:Plate (RP) is a not-for-profit grocery store that buys unused edible food from restaurants and for-profit grocery stores and sells the food at below-market prices. It also offers cooking classes for a fee throughout the year. RP will begin its fifth fiscal year, FY 2018, on July 1, 2017 with $65,000 of cash on hand.

On July 1, RP will take out a $55,000 bank loan. The loan will have an annual interest rate of 2.5% and require annual interest payments, the first of which is due on June 30, 2018. RP will make a principal repayment of $11,000 on June 30, 2018 as well. It will use the loan to purchase a new forklift on January 1, 2018 that will have a useful life of 10 years and a salvage value of $5,000. RP has other equipment it purchased on September 1, 2016 for $75,000; this equipment has a useful life of 5 years and no salvage value.

RP will pay its employees a total of $325,000 in salaries and benefits during FY 2018, up from $288,000 in FY 2017. Employees are paid monthly with a one-month lag.

In FY 2018, RP will pay $12,000 per month in rent, up from $9,500 per month in FY 2017. Rent will increase to $15,000 per month in FY 2019. The organization pays rent one month in advance. In addition, RP will pay $3,500 per month in utilities, which are paid timely. RP also plans to buy 1,000,000 pounds of food at $1.35 per pound in cash. The food will be bought and used evenly throughout the year.

RP anticipates that it will sell all of its 1,000,000 pounds of food in inventory that it acquires throughout FY 2018 at an average price of $1.85 per pound. These grocery sales will happen evenly throughout the year and are received with a one-month lag. In FY 2017, RP sold $1,600,000 worth of food, spread evenly throughout the year. In addition, RP plans to offer 3 cooking classes per week, 52 weeks per year. Each class will have 15 participants, each of whom will pay a $50 class fee at the time of the class.

In an Excel spreadsheet, show an annual operating budget and a semiannual cash budget (showing the first half of the year, the second half of the year, and the annual amounts in three side-by-side columns) for Re:Plate for FY 2018.