PLCY 688F: Fall 2021

Homework #1

1) A not-for-profit organization operates a community recreation center. The city provides a subsidy
of $4,000 per month. The rest of the center’s revenues come from admission charges, which are
as follows: $25 for a family admission pass (the average family has four people), $6 per child for
a children’s pass for children in school groups, $9 per child for a children’s pass for children who
are not in a school group, and $12 for an adult admission pass. The center usually has about four
school groups visiting per month, with an average of 30 students in each group. All tickets entitle
the visitor to swim in the center’s swimming pool. However, only one-quarter of all visitors
actually swim in the pool.

The recreation center expects to sell the following number of passes in each category per month:

Pass Type Monthly Number of Passes Sold

Adult 900
Child 1,050
School Groups 4
Families 325

The center has the following monthly expenses in four general areas:

Administration $12,000
Center staff $10,000
Pool operation $2.50 per swimmer
Maintenance $2.00 per visitor

Determine the operating budget per month. Show revenues and expenses by line item, and show
the expected profit or loss.

2) Draft a quarterly cash budget for the community recreation center for the first two quarters of the
coming year, using the information found in question 1, as well as the following information:
[1] Annual expenses for center administration and staff (other than maintenance workers) are
paid evenly throughout the year.
[2] Assume the cash balance on January 1 is $5,000 and the organization’s policy is to have
at least a $5,000 ending cash balance each quarter.
[3] The center is charged an interest rate of 4 percent per year. Interest is paid on the last day
of the year (the last day of quarter 4) on the total amount borrowed by the center over the
course of the year.
[4] Expenses for operating the pool are incurred in the same seasonal pattern as admissions
and are paid with a one-quarter lag. The budgeted annual expense for this year for pool
operations is the same as it was last year.
[5] The cost of the maintenance crew is 30 percent of admission revenue each quarter.
Maintenance workers are paid in the quarter in which they work.
[6] The city’s subsidy is actually received in full on the last day of the fourth quarter of the
year.
[7] The center collects all payments for daily passes in cash at the time of admission. The
seasonal pattern of admissions is shown in the following table:

Quarter

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 1 2 3 4
Admissions by Quarter 25% 20% 25% 30%

3) Leafytree College (LC) is a medium-sized private school located in the Pacific Northwest. In the
past, LC administrators established a budget for the next academic year by adding a specific
percentage (e.g. 6%, 8%) to the tuition revenue and operating expenses. This year LC has asked
for your assistance in developing its budget for the next academic year. You are supplied with the
following data for the current year.

Enrollment – total number of students 4,300 students

Percentage of enrolled students who are 70 percent
full-time (32 credit hours)
Percentage of enrolled students who are 30 percent
part-time (16 credit hours)
Annual tuition - full-time students $3,500/year
Annual tuition - part-time students $1,800/year
Full-time faculty 250 (70% tenured)
Fees $300/year

For the next academic year, enrollment is expected to increase by 300 students. The college
expects the same percentage of the new students to be full-time (i.e., taking an average of 32
credit hours per year) as seen in the current student body. Next year, tuition will increase by
$300/year for full-time students and by $200/year for part-time students. All students pay $300 in
fees for student services offered by the college.

a. Show the school’s estimated tuition and fee revenue budget for the upcoming school year.

The additional students will require LC to hire 20 adjunct faculty members. Each adjunct will
teach 16 credit hours per year and will be paid at the rate of $750/credit hour. Full time faculty
members currently make $36,000 in salary, on average, and will receive a 4 percent pay increase
in the upcoming school year. Additional merit increases to be awarded to individual faculty
members will amount to $280,000.

b. Prepare the college’s budget for faculty salaries (full-time faculty plus adjuncts) for the
upcoming school year. The payroll budget should reflect payroll taxes using a rate of 10
percent.

c. Suppose the college wanted to use the projected profits (if any) to support full-tuition
scholarships for full-time students. How many scholarships could the college fund in the
upcoming school year?

4) The Corwood Community Clinic (CCC) is a not-for-profit wellness clinic that offers subsidized
services to members of the local community. CCC’s executive director has asked you to prepare
an annual budget for the coming year as well as a flexible budget based on a 5 percent increase in
the number of annual memberships they sell. She has given you the following guidelines.

 Number of memberships sold (current estimate): 800

 Average annual number of exercise classes attended per member: 19.5
 Cost of food and beverage, per member, per exercise class: $1.10

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  Instructor wages per member per exercise class session: $5
 Cost of wellness assessment: $60
 Cost of the gymnasium and related equipment: $400,000
 Useful life of the gymnasium and equipment: 20 years
 MR uses straight-line depreciation
 Salvage value of the gymnasium and equipment: $0

CCC offers annual memberships to community residents for a cost of $225, which is payable in
cash at the time members join. Members are entitled to a wellness assessment, which is
conducted for free, as well as an opportunity to attend weekly exercise classes throughout the
quarter. Healthy snacks and Gatorade are available to everyone who attends the exercise classes.
The session instructors are temporary workers who are paid a per-member cost of five dollars per
member per class.

CCC has three full-time employees: an executive director, who earns $60,000 per year; a
physiologist who earns $50,000 per year; and a gym manager who earns $25,000. Fringe benefits
are equal to 25 percent of each employee’s annual salary. Experience has shown that 35 percent
of members elect to make an additional donation to CCC during the year. Historically, these extra
donations have averaged $175 apiece. In addition, CCC has an active fund-raising program and
expects to raise $95,000 in individual and corporate contributions during the fiscal year.

5) The Thirsty Ear is a nonprofit neighborhood organization that provides opportunities for
members and students at the local community college to form bands that perform live music. The
organization’s leaders have asked you to prepare a special-purpose budget for the program for the
next academic year. Prepare the budget for the full academic year using an accrual basis using
the following information.

The Thirsty Ear will derive revenue from three sources. In addition to paying tuition to the
community college, students enrolled in band classes will pay $450 per semester to the Thirsty
Ear to form bands with their fellow students, practice all semester in the rehearsal space, and (if
mutually agreed upon with the music faculty) perform a paid concert for the public at the end of
the semester. Community members will pay $50 per semester to form bands, rehearse, and
potentially perform, but will not receive course credit. The college has two semesters each year.
The only other revenue will come from the sale of tickets to the ten live performances that the
Thirsty Ear intends to host each academic year. Seven of the performances will be live shows by
student bands; the other three will be live shows by bands made up of community members. The
bands in each category that want to play live, and are determined by the community-college
faculty to be capable enough to play live, will perform at the live shows.

The community-college faculty expects to have 35 students enrolled in band classes each
semester, and also expects another 20 people from the community to play in the band each
semester. Based on discussions with other organizations, the Thirsty Ear expects its concerts to
attract 300 people on average and expects to charge $2.50 per ticket.

The Thirsty Ear will have to hire a graduate assistant at a cost of $15,000 per academic year (two
semesters). The organization will also rent musical instruments for the bands to use: they will rent
six guitars, five bass guitars, four keyboards, and five drum sets per semester. The rental fee for
one guitar is $90 per semester; for one bass guitar, $80 per semester; for one keyboard, $100 per
semester; and for one drum set, $200 per semester.

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 The Thirsty Ear will rent rehearsal space from the local high school at a cost of $250 per night. In
each semester, bands will use the rehearsal space one night each week for 15 weeks.

The organization will also pay $100 to clean the hall after each concert and $50 per concert for
student ushers. It will also spend $200 on promotion for each concert and $75 per concert for
insurance. Ticket and program costs will average $.75 per attendee.

Finally, the Thirsty Ear needs to buy a public address system at a cost of $4,500 and a full set of
speakers at a cost of $3,000 for the live performances. The organization assumes that the PA
system and speakers will each last for five years and will not be able to be sold for anything after
that time. The organization will also need to buy 30 microphones at $150 apiece, and 20
microphone stands at $100 apiece. The organization assumes that the useful life of these pieces of
equipment will be one year or less.

6) Millbridge Township provides a variety of summer recreation alternatives. You can belong to the
town pool, play tennis, or play golf. Summer passes allowing residents to use these facilities are
sold each year. One quarter of the season passes that are purchased are golf passes, 35 percent are
for tennis, and the rest are for the pool. The golf passes are $45, the tennis passes are $45, and the
pool passes are $70. The cost of providing these services is mostly fixed, with a $3 variable cost
per pass, regardless of type. The fixed cost of operating the summer recreation program is
$260,000. How many people must buy recreation passes for the town to break even? How many
passes would be sold for the pool at that break-even volume?