QUESTION:

As he was working on his budget analysis, Rory Lyons received a phone call from the Mayor. The Mayor said that due to state budget cutbacks. The Zoo should expect to receive $100,000 less in state subsidies for the coming year. Faced with this situation, which of the following options would you recommend to Rory Lyons for closing the budget shortfall? Calculate the net budgetary impact for each of these options using the actual budget:

1) Increase ticket prices to $15.00.

Rory believes this might reduce the number of visitors to the Zoo by 20%.

2) Reduce the number of animals to 100 by finding other host programs. There would be a one-time cost of transportation of $1000 each.

3) Fire one of the two assistant zookeepers. This will require a severance payment equal to 10% of the annual salary and a payment of full fringe benefits for 6 months. Note: the zookeepers are not the same people as the animal handlers.

The Kalamazoo Zoo It was a cold drizzly morning in early March 2010 when Rory Lyons, the director of the Kalamazoo Zoo, received the zoo's financial information for the year ending December 31, 2009. The situation was quite different from what Rory had expected. As he folded his umbrella, he wondered whether the strange weather patterns were responsible for the big variances in the budget. It had indeed been a peculiar year, weather-wise, in Kalamazoo. The winter had been the wettest on record, while the spring and summer had been unusually warm and balmy. The winter storms had forced the zoo to close for more days than originally planned. But the frisky spring weather had produced an unexpected success in the animal-breeding program. Kalamazoo, a city in the state of Michigan, was facing a tough economic environment. This year, the zoo itself had received more state aid than expected, largely due to a renovation grant for its facilities. However, the overall budget situation was difficult. The state was reducing the amount of local aid it provided to the cities, forcing the city of Kalamazoo to reconsider many of its popular recreation activities. The Mayor had just called an emergency meeting to discuss the city's financial situation. Rory was asked to give a detailed presentation on the zoo's financial health and to present a preliminary budget for the next financial year Table 1: All Figures in $ KALAMAZOO ZOO Financial Statement 2009 Revenues: ACTUAL BUDGETED Gate Ticket Revenue from visitors License Revenue from the food court Donations from individuals Grants for the Tiger Conservation Project* Grants for the Rhino Conservation Project Grants for the Yellow-billed Cuckoo Conservation Project Subsidies from the state government * Funds received directly from Federal government Total Revenues 100,000 100,000 50,000 180,000 100,000 120,000 200,000 120,000 100,000 100,000 150,000 100,000 100,000 150,000 850,000 820,000 Expenditures: Salary of Zoo Director Salaries for Assistant Zoo Keepers (2 total) Wages and Salary for Animal Handlers Security, Office and Support staff Wages Fringe Benefits cost for employees (health insurance, etc.) Food and Provision costs for animals Overtime costs Utilities Transportation and facilities for visitors 80,000 100,000 100,000 50,000 130,000 360,000 100,000 50,000 100,000 80,000 100,000 100,000 50,000 130,000 240,000 40,000 30,000 50,000 Total Expenditures 1,070,000 820,000 Table 2: Operating Data Number of visitors Price per Admission Ticket Number of donations Value of each donation Number of animals in the Zoo Food Consumed /animal/year Overtime costs Number of Zoo open days Actual 10,000 $10.00 1000 $50 120 $3000 $434/day 230 Budgeted 15,000 $8.00 500 $200 100 $2400 $120/day 250