Collegiate Management Education (CME) Inc. is a nonprofit organization that sponsors a wide variety of management seminars throughout the Southwest. In addition, it is heavily involved in research into improved methods of teaching and motivating college administrators. Its seminar activity is largely supported by fees, and the research program is supported by membership dues.

CME operates on a calendar-year basis and is finalizing the budget for 2017. The following information has been taken from approved plans, which are still tentative at this time:

Seminar Program

Revenue

The scheduled number of programs should produce $12,000,000 of revenue for the year. Each program is budgeted to produce the same amount of revenue. The revenue is collected during the month the program is offered. The programs are scheduled during the basic academic year and are not held during June, July, August, or December. Of the revenue, 12 percent is generated in each of the first five months of the year and the remainder is distributed evenly during September, October, and November.

Direct expenses

The seminar expenses are of three types:

• Instructors' fee are paid at the rate of 70 percent of seminar revenue in month following the seminar. The instructors are considered independent contractors and are not eligible for CME employee benefits.
• Facilities fees total $5,600,000 for the year. They are the same for each program and are paid in the month the program is given.
• Annual promotional costs of $1,000,000 are spent equally in all months except June and July, where there is no promotional effort.

Research Program

Research grant

The research program has a large number of projects nearing completion. The main research activity this year includes feasibility studies for new projects to be started in 2018. As a result, the total grant expense of $3,000,000 for 2017 is expected to be incurred at the rate of $500,000 per month during the first six months of the year.

Salaries and Other CME Expenses

• Office lease - annual amount of $240,000 paid monthly at the beginning of each month.
• General administrative expense -$1,500,000 annually, or $125,000 per month, paid in cash as incurred.
• Depreciation expense - $240,000 per year.
• General CME promotion - annual cost of $600,000, paid monthly.
• Salaries and benefits are as follows:

Number of Employees

Annual Cash Salary

Total Annual Salaries

1

$50,000

$50,000

3

40,000

120,000

4

30,000

120,000

15

25,000

375,000

5

15,000

75,000

22

10,000

220,000

50 (Total)

960,000 (Total)

Employee benefits are $240,000, or 25 percent of annual salaries. Except for the pension contribution, the benefits are paid as salaries are paid. The annual pension payment of $24,000, based on 2.5 percent of total annual salaries, is due on April 15, 2017.

Other Information

• Membership income - CME has 100,000 members, each of whom pays an $100 annual fee. The fee for the calendar year is invoiced in late June.
• Collection schedule - July, 60 percent; August, 30 percent; September, 5 percent; and October, 5 percent.
• Capital expenditures - this program calls for a total of $510,000 in cash payments to be spread evenly over the first five months of 2017
• Cash and temporary investments at January 1, 2017, are estimated at $750,000.

Requirements:

a.Prepare a budget of the annual cash receipts and disbursements of 2017.

b.Prepare a cash budget for CME for January 2017.

c.Using the information developed in (a) and (b), identify two important operating problems of CME