Part 1: Project
- Complete the Real Life Problem A9-69 "Budgeting Issues at the Movies" located on pages 570-571 at the end of Chapter 9.
- Use thisFinal Project TemplateZIP
- to complete the problem.
se-se Budgeting issues at the movies {Learning Objectives 1,2, 3. s 4,: lvlovies are expensive to produce and market. According to llvllZJbr the most expensive lm on record is Pirates of the Caribbean: At World's End. with a total budget of $3315 million.1 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 movie's budget. including: I Story rights - Screenplay I Producers and directors Ir East I Production costs II Special ei'Fects I lvlusic The typical film budget you read about in the press includes only expenses. The movie bud- gets released to the general public do not include estimated box offioe receipts or other rev enue streams. In addition. movie budgets do not usually include marketing costs. which can be another 5-036 or more of the film's 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 F'atrick Goidstein states that "everyone" lies about their movie budgets.2 For example. it was reported initially that The Avengers, a Marvel Studios filmI had an overall budget of $1713 million. Another source indicated that the budget for The Avengers was $26G million. Which one of these figures was the "correct" budget gure? No one outside of the manage ment of the movie really knows. Requirements 1. Budgeting for a movie can be challenging. Frequently. budget items change as the movie production progresses. If budgeting for a movie is difficultr why prepare a movie budget? 2. What reasons can a movie director have for misrepresenting the overall budget for a par- ticular movie? ls misrepresenting a movie budget unethical? Do you think misrepresenting a movie's total budgeted expenditures to the public harms anyone? Why or why not? 3. "If a Hollywood movie's box ofce number exceeds its production budget. then that movie makes a profit." From reading the information given in the C353. do you agree with this statement? Why or why not? 4. Sometimes actors, directorsr and producers are asked to take a lower salary up front and instead receive a percentage of the film's overall gross profits [from box ofce reoeipts. DVD sales. and similar revenue streams}. Why might the film company propose this ar rangement? Why might the actors. directors. and prod uoers accept this arrangement? Would this type of arrangement {lower salary up front with a percentage of the film's gross prots later} make the budgeting process easier or more challenging? Why? A9-69 Budgeting issues at the movies Requirements: 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? 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 movie's total budgeted expenditures to the public harms anyone? Why or why not? 3. \"If a Hollywood movie's 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 film's 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 film's gross profits later) make the budgeting process easier or more challenging? Why? 1. 2. 3. 4. items change as cult, why prepare he overall budget cal? Do you think blic harms on budget, then the case, do you a lower salary up profits (from box ight the film tors, and ment (lower salary he budgeting Question 1. Preparing a movie budget is very crucial in the film making process. Not only does the budget aid the film-making process in various ways, it also affects the movie in significant ways. The budget assists in the process of making movies in the following ways; The movie budget provides the roadmap to follow during the stages of production of the movie. The budget presents the guidelines and steps that have to be undertaken at each step of production. The budget reduces the likelihood of occurrence of unexpected events that may impact the production process negatively. In the case of occurrence of such events, the budget incorporates the plans to compensate for the resulting effects. The movie budget is important in cost cutting. The budget helps to determine which expenses are necessary and which can be eliminated. The budget is also essential in setting cost and production targets. In addition to this, the budget is also very crucial in luring investors and in fundraising in case the need arises. In addition to helping in the film-production process, the budget also affects various aspects of the movie. This is done by; The movie budget sets the tone of the picture and the entire movie. Whether the movie, is low-budget, medium-budget or high-budget sets assumptions about the movie. The budget scope affects the amount of money to be raised and the fundraising techniques to be used. The budget of the movie also affects the minimum payments of the actors and other workers that are involved in the production process. The budget of the movie is very crucial and very necessary to prepare. Question 2. a) Movie directors have various reasons to misrepresent the budget of their films. However the main reason that directors overstate their budgets is because low budget films normally don't get as much attention when compared to medium and high budget films. Remember that the scope of the budget sets the tone and assumptions of the movie. Therefore, directors overstate their budgets so as to create the assumption of a better movie. This will in turn increase the sales revenue of the movie in subject. Movie directors also overstate their budgets so as to attract more money from investors and fundraisings. The perception is that a high budget film is usually a better one. So investors are more willing to invest in high-budget films than in low-budget ones. This leads to directors overstating their budgets so as to attracting more investment. b) Misrepresenting movie budgets is unethical. This is because the consumers are misguided about the standard of the movie. They believe that they are purchasing (consuming) a high standard movie but that is not the real case. Raising funds and resources by misrepresenting the movie budget is also unethical. The investors believe they are staking their money in a high quality movie but this is not the case. The investors may end up losing their investments. c) Yes. Overstating budgeted expenses harms some members of the public. The first group of people to be affected are the consumers. Overstating budgeted expenses leads to an overstated budget that creates a false perception of a high quality movie in the minds of consumers. Therefore, the consumers will end up paying more for less value. Secondly, overstating budget expenditures affects the stakeholders and the government. By overstating expenses, the net income of the production is falsely reduced. This means that the stakeholders end up receiving less revenue and the government receives less taxes than they should. This will affect the general public in the long run. Question 3. The statement is false. Just because a movie's box office number exceeds its production budget doesn't mean it will make a profit. This is because the budget is not a holistic statement of all the costs involved in the production method. The budget is just a planned financial statement that does not cover 100% of the costs of production to be incurred. The budget may not include costs involved in the production process like marketing costs and unprecedented miscellaneous expenses. This means that the movie's box office number may exceed its production cost but still not exceed the entire production cost incurred. Question 4. The film company might make this arrangement so as to cushion it in the case that the movie does not make enough revenue and income. This arrangement sets to reduce the fixed cost of production that in turn reduces the total production cost. The actors, directors and producers may accept this arrangement if they forecast that the movie will raise greater sales revenue and profit than they will be paid in fixed salaries. If this is the case then, then they will reap big wages if they accept this arrangement. This arrangement makes the budgeting process more challenging. This is because variable costs are difficult to predict and account for in financial statements. In addition to this, this arrangement brings in the additional process of predicting the future sales revenue and profits that will be earned by the movie so as to determine the costs associated. A9-69 Budgeting issues at the movies Requirements: 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? 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 movie's total budgeted expenditures to the public harms anyone? Why or why not? 3. \"If a Hollywood movie's 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 film's 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 film's gross profits later) make the budgeting process easier or more challenging? Why? The budget of the movie also affects the minimum payments of the actors and 1. other workers that are involved in the production process. The budget of the movie is very crucial and very necessary to prepare. 2. and assumptions of the movie. Therefore, directors overstate their budgets so as to create the assumption of a better movie. This will in turn increase the sales revenue of the movie in subject. Movie directors also overstate their budgets so as to attract more money from investors and fundraisings. The perception is that a high budget film is usually a better one. So investors are more willing to invest in high-budget films than in low-budget ones. This leads to directors overstating their budgets so as to attracting more investment. Raising funds and resources by misrepresenting the movie budget is also unethical. The investors believe they are staking their money in a high quality movie but this is not the case. The investors may end up losing their investments. government. By overstating expenses, the net income of the production is falsely reduced. This means that the stakeholders end up receiving less revenue and the government receives less taxes than they should. This will affect the general public in the long run. involved in the production process like marketing costs and unprecedented 3. miscellaneous expenses. This means that the movie's box office number may miscellaneous expenses. This means that the movie's box office number may exceed its production cost but still not exceed the entire production cost incurred. 4. sets to reduce the fixed cost of production that in turn reduces the total production cost. The actors, directors and producers may accept this arrangement if they forecast that the movie will raise greater sales revenue and profit than they will be paid in fixed salaries. If this is the case then, then they will reap big wages if they accept this arrangement. This arrangement makes the budgeting process more challenging. This is because variable costs are difficult to predict and account for in financial statements. In addition to this, this arrangement brings in the additional process of predicting the future sales revenue and profits that will be earned by the movie so as to determine the costs associated
