The Highlanders is a nationally recognized drum and bagpipers group that performs in parades and official ceremonies from weddings to inaugurations to funerals. The group consist of 18 bagpipers and 10 drummers plus a director and is headquartered in Lochlomond, Virginia. To be a member of this prestigious group, candidates must pass a talent recital and be able to contribute financially to the general operation of the organization. There never seems to be a shortage of candidates interested in applying for membership in the Highlanders. The members must also have an outgoing personality because they are ambassadors for their organization and serve as representatives for their city and state.

In recognition of their national prominence, the Highlanders have been part of the governors inauguration for the past 40 years. They also regularly appear in Scottish festivals throughout the mid Atlantic region. Many of the members have Scottish ties in their genealogy, but that is not a requirement for membership.

While the Highlanders receive financial compensation from the members, there is still a considerable amount of funds, which must be secured from other sources. The members must also pay for their own instruments, which they own, but which must comply with standards of the organization. Many of the members have at least two bagpipes or drums just in case one might break during a performance. Members also have to buy their own uniforms, which include custom kilts, shoes, socks, jackets and hats. It is also wise to include a second uniform especially if they have to perform in inclement weather.

The organization has a bus and two equipment vans. They also have a rental office with a staff of two to take care of booking events, maintaining equipment, seeking financial support, maintaining a web site, and overseeing other operating activities. The vehicles are also located at this site and extra uniforms and musical equipment are stored at the office. The Highlanders often practice in the office parking lot on weekends when they are not booked for a performance.

Jake Priode has been a member of the Highlanders for 6 years as a bagpiper. He has played his instrument for over 15 years, and it took him three years of auditions before there was a vacancy and he joined the organization. Typically Jake pays $250 per year in uniform costs. Every year he buys a new uniform which last about 3 years, so Jake has 3 complete uniforms in supply at all times along with a few extra items especially hats and socks for special occasions.

Jake also spends between $800 and $1,000 every year for instrument and music costs. He has 2 bagpipes and a few replacement parts. He also has to buy music that the group will use in performances. Since the Highlanders do a lot of traveling for events, many of which are not fully funded, Jake needs to pay some food and lodging costs. Last year he paid a total of $1,700 for these costs. Finally, the Highlanders try to raise enough supplementary funds to support the overhead cost of operations of the organizations, but members are expected to contribute some funds if there is a budget shortfall. Last year, Jake paid $525 to the Highlanders which went to staff salaries and vehicle maintenance costs.

In spite of the costs and time commitment, Jake is totally devoted to the Highlanders as are most of the members. Where else can he have the opportunity to perform with the instrument he loves to play, perform at prestigious ceremonies, and have the opportunity to represent his homeland of Scotland. He also enjoys the chance to share with interested bystanders some of the heritage of the Highlanders and bagpipe music.

The city is also very proud of the Highlanders. The city council has frequently recognized the organization and the credibility they bring to the city and area. The Highlanders also provide free publicity for the city as the city name is on the base drum and banner carried in parades. When the Highlanders perform in the mid-Atlantic region, they have the chance to advertise the Lochlomond Scottish Highland Games and Festival, which are a major tourist attraction for the city each August. The Highlanders also sponsor a drum and bagpipers marching band competition at the festival, which brings in some of the best groups in the eastern United States.

Next year, the Highlanders have been invited to perform in the Presidential Inaugural Parade in Washington DC and also participate in the swearing in ceremony plus they have been asked to represent the State of Virginia and the nation of Scotland in the Rose Parade in California. These performances are in addition to an already busy schedule, which includes at least 20 parades, and performance at 8 festivals along with numerous weddings, personal events and funerals.

The director of the Highlanders, Harry OLeary, realizes that there could be a significant financial obligation to the Highlanders for the coming year. They would like to get special uniforms for the Presidential Inauguration and Rose Bowl parade plus the travel cost to Los Angles and lodging in the area could be very expensive. Cost of going to Washington DC will not be that extensive, but, lodging cost could be expensive and scarce with all of the activities going on at the time. Budgeting and control of funds was never a talent of Harrys, so he asked Jack, who recently received his MBA, for some assistance.

While Jake and the other members were excited about the opportunities for next year, they were a little concerned about the additional costs, especially going to the Rose Parade, which could add up to over $1,000 per member. Jake suggested that the Highlanders should try to find some supplemental sources of funds to help in the anticipated costs of these and other events. However, the Highlanders would have to develop a good budget and financial statements to present to sponsoring organizations before requesting funding support.

Harry asked Jake if he could develop financial statements for the Highlanders and a budget for the next year. Jake stated that he would need financial records for this last year and requested that the staff help him in determining costs for attending the various events. Jake and Harry both felt that member support for travel and operation costs should not exceed $1,500 per member next year.

Leslye Jones, the office manager, worked with Jake in obtaining critical financial information. The organization has a 10 year old bus with 100,000 miles on it. The bus originally cost $62,000 and has been paid in full. Jake thinks the bus is half way through its useful life. One of the vans was purchased 4 years ago for $20,000 and is paid in full. It has 75,000 miles on it and should have 6 more years of useful life. The second van was purchased last year for $30,000. The van has a useful life of 10 years and has a current loan balance of $25,000. The 12% loan has 55 months remaining with a payment of $593 per month. Maintenance on these vehicles was $2,200 last year, and that is expected to increase to $2,500 for next year.

The Highlanders spends $4,300 per year on music and music related supplies. The rent on the office space is $1,600 per month and that is expected to remain unchanged. Utilities total $200 per month. Leslye anticipates that office supplies currently at $100 per month will increase to $150 per month. The telephone cost will be $75 per month, which includes long distance service. The web site has an annual charge of $300 and Leslye says she annually pays a high school student $500 to update the web page and add customizing features.

The Highlanders also have $3,500 of musical equipment $1,800 of music supplies, and $4,200 of office equipment. These items are all paid in full. Next year, the organization anticipates purchasing $2,000 of additional music equipment. They also plan to purchase a second computer for $4,500 and some new computer software for $650. There is a cash balance in the checking account of $1,000 and a certificate of deposit of $2,500.

The salary for Leslye is $25,000 plus $10,000 in employee benefits. The organization would like to give her a $1,000 raise next year. The second employee is a part time maintenance person who also drives the bus to most functions. This employee is paid on an hourly basis of $14.60 per hour plus there is an additional 20% allowance for employee benefits. Last year this employee worked 1,400 hours. Next year, that is anticipated to increase to 1,600 hours. The pay rate will increase to $15.00 per hour.

Travel costs absorbed by the Highlanders was $5,000 over and above that paid for by the members last year. That cost is expected to increase to $8,000 next year with the Rose Parade event. Other event relates costs to the organization equaled $3,500 last year and this should increase to $5,000 for the coming year. Leslye also thought it would be good to include $2,800 for miscellaneous expenses.

The Highlanders is considered as a nonprofit organization, so they do not have to pay taxes on any income. Individuals and other organizations can make charitable contributions to the Highlanders for tax deduction purposes. When the group performs at ceremonies and other functions, they often receive an honorarium. Last year the honorariums totaled $13,000. Next year, it is hoped that that total will increase to $16,500.

Jake does not believe that honorariums and member contributions will be enough to balance the budget, especially if the group goes to the Rose Parade and incurs those additional costs. Last year the city of Lochlomond gave the Highlanders $37,500 for operational support, and other organizations contributed a total of $8,650. There is going to have to be a much greater effort at fund raising or possible getting a grant or more city support if the Highlanders are able to meet budget.

Required (Please show your work in details):

1. What is the projected total amount of excess funds or shortage for the budget year 20x1?

2. Suggest ways the Highlanders can earn extra income for 20x1.

3. Compute a balance sheet for the Highlanders as of today. (Assume December 31, 20x0 for today's date.)

4. Calculate a budgeted income statement for the Highlanders for the year 20x1.