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Managerial Accounting - Project A museum currently has a $30 million endowment, but it also has substantial operating costs and continues to add to its collection that encompasses paintings, photographs, drawings, and design objects. Annual earnings from the endowment (approximately $2,500,000 in 2021) are not sufficient to cover operations and acquisitions, and the museum's trustees and president are conscious of the need to generate income from admissions, special exhibits, and museum store sales. Alice Morgan, photographic curator, is in the process of planning an exhibition of Ansel Adams photographs that will run from September through November 2022. Below is a preliminary budget, prepared by Alice, of revenue and costs associated with the exhibition. Notes: 1 Estimated attendance is 10,000 , and admission to the exhibit is $15. 2 Some photographs will come from the museum collection while others will be leased from other museums and collectors. 3 Cost of packing and transportation to and from the museum. 4 Insurance to cover photographs during the run of the exhibition. 5 Twenty-five percent of annual salary for Alice Morgan, head photographic curator. 6 Twenty-five percent of annual salary for William Jacob, assistant photographic curator. 7 Cost of guard service for exhibition. 8 Painting of exhibition room to off-white background. 9 Advertising in newspapers and public radio. 10 Cost of programs describing the work of Ansel Adams and pictures at exhibition. In preparing the budget, Alice assigned 25\% of her and her assistant's annual salaries to the exhibition since they will each spend approximately 3 months on the project. An admission fee of $6 is charged to enter the museum, and attendance at the exhibition is an additional $15 per person. Approximately one-fifth of the individuals who are estimated to attend the exhibition would have come to the museum whether the exhibition was being held or not. (Alternatively, four-fifths of the individuals are coming specifically to attend the exhibition.) Analysis of prior data indicates that 20 percent of individuals make a purchase at the museum store, and the average purchase price is $8. The store has a 30 percent gross margin (sales minus cost of sales) and profit (sales minus cost of sales minus staff salaries and other operating costs) per dollar of sale of 5 percent. Required: (a) Prepare an analysis of the financial impact of the exhibition on the museum assuming attendance is 10,000 . How much will net income increase or decrease because of the exhibit? SHOW YOUR WORK AND NOTE ANY ASSUMPTIONS. Does offering the exhibition appear to be a good decision from a financial standpoint? (b) How many people must attend the exhibition for it to break even? (NOTE: All costs in this example are fixed costs.) Managerial Accounting - Project A museum currently has a $30 million endowment, but it also has substantial operating costs and continues to add to its collection that encompasses paintings, photographs, drawings, and design objects. Annual earnings from the endowment (approximately $2,500,000 in 2021) are not sufficient to cover operations and acquisitions, and the museum's trustees and president are conscious of the need to generate income from admissions, special exhibits, and museum store sales. Alice Morgan, photographic curator, is in the process of planning an exhibition of Ansel Adams photographs that will run from September through November 2022. Below is a preliminary budget, prepared by Alice, of revenue and costs associated with the exhibition. Notes: 1 Estimated attendance is 10,000 , and admission to the exhibit is $15. 2 Some photographs will come from the museum collection while others will be leased from other museums and collectors. 3 Cost of packing and transportation to and from the museum. 4 Insurance to cover photographs during the run of the exhibition. 5 Twenty-five percent of annual salary for Alice Morgan, head photographic curator. 6 Twenty-five percent of annual salary for William Jacob, assistant photographic curator. 7 Cost of guard service for exhibition. 8 Painting of exhibition room to off-white background. 9 Advertising in newspapers and public radio. 10 Cost of programs describing the work of Ansel Adams and pictures at exhibition. In preparing the budget, Alice assigned 25\% of her and her assistant's annual salaries to the exhibition since they will each spend approximately 3 months on the project. An admission fee of $6 is charged to enter the museum, and attendance at the exhibition is an additional $15 per person. Approximately one-fifth of the individuals who are estimated to attend the exhibition would have come to the museum whether the exhibition was being held or not. (Alternatively, four-fifths of the individuals are coming specifically to attend the exhibition.) Analysis of prior data indicates that 20 percent of individuals make a purchase at the museum store, and the average purchase price is $8. The store has a 30 percent gross margin (sales minus cost of sales) and profit (sales minus cost of sales minus staff salaries and other operating costs) per dollar of sale of 5 percent. Required: (a) Prepare an analysis of the financial impact of the exhibition on the museum assuming attendance is 10,000 . How much will net income increase or decrease because of the exhibit? SHOW YOUR WORK AND NOTE ANY ASSUMPTIONS. Does offering the exhibition appear to be a good decision from a financial standpoint? (b) How many people must attend the exhibition for it to break even? (NOTE: All costs in this example are fixed costs.)
