Case Study - Kalamazoo Zoo PDF

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Case Study #1 “The Kalamazoo Zoo”

Presented to Amanda Simmers Instructor, School of Business St. Lawrence College/Laurentian University

Prepared by Emma Davy, Kurtis O’Keefe, Emma Jackson, Keirsten Burgess, and Mykaela Mallette ADMN3107 – Management Accounting and Control II

February 11, 2019

QUESTION 1: Revenue and Expenditure Variance Actual Budget $850,000 $820,000 Revenue Variance Expenses 1,070,000 820,000 Variance QUESTION 2: Ticket Revenue Variance Actual Budgeted Quantity Quantity Quantity 10,000 15,000

Actual Price Price

$10

Budgeted Price $8

Variance Amount $30,000

F/U F

250,000

U

Budgeted Price $8

Actual Quantity 10,000

Variance

F/U

$40,000 (15,000x8) – (10,000x8)

U

Variance

F/U

$20,000

F

When tickets were sold at $8 each, the zoo undersold by 5,000 tickets which created a price variance of $40,000 in total. This is unfavourable because their expectations were that they would sell 15,000 tickets but only sold 10,000. This could be due to the cost of the tickets or other factors such as weather. If they increase the price per ticket to $10 from the previous $8, with the assumption that they could reach a total number of 10,000 tickets sold rather than the previous 15,000 tickets, their new variance in dollars would only be $20,000, however, this is in fact, favourable. It is a favourable variance in the sense that the zoo is selling each ticket at an increase of $2, while still maintaining ticket sales of 10,000. QUESTION 3: Animal Food Expenditure Variance Actual Budgeted Quantity Quantity Quantity 120 100 Actual Price Price

$3,000

Budgeted Price $2,400

Budgeted Price $2,400

Variance

F/U

$48,000

U

Actual Quantity 120

Variance

F/U

$72,000

U

By conducting the quantity and price analysis of animal food expenditure at the zoo we can learn that both variances are unfavourable. The zoo under-budgeted both the quantity and the price for animal food expenditure. They overspent with regards to the actual number of animals as well as under-budgeted on food prices, spending more money feeding each animal. In the end, the zoo needs to adjust their operations and correct this as it could cause a snowball effect as these variables have the potential to build on each other until the costs are out of control. QUESTION 4: The overall situation of Kalamazoo Zoo seems as though it’s going downhill. Given the different analyses presented above, it shows that although revenues have increased ever so slightly, the total expenses of the organization (in relation specifically to everyday expenditures, including the animal food expenditures) have increased substantially. The expenditures were budgeted for $820,000, but what was actually spent was $1,070,000. That’s a $250,000 increase, which stands to reason that there may be issues going on in the organization. It’s possible that there weren’t clear sightlines between the zookeepers, management and the budgets. They may have misunderstood or just completely deviated/failed to budget their expenses or their department properly. One area that Rory could consider investigating would be the expense of overtime costs. This particular expense was $60,000 over budget and it’s possible that staff are maybe taking advantage of the business, so it’d be a good idea to investigate this. One other area that Rory may consider looking into is the expenses revolving the animals themselves. These variances were quite substantial, and it would be highly recommended that Rory discuss these issues with the management team to decipher where they can reduce costs, and where to go from here in general.

QUESTION 5a: Increase budget by making tickets cost $15 to reduce visitors by 20% Actual Budget Variance Tickets $120,000 $100,000 20,000 License 100,000 100,000 Donations 50,000 50,000 Grants (all) 400,000 400,000 Subsidies 100,000 200,000 100,000 Total $770,000 $850,000 $-80,000

F/U F U U

Ticket Actual = 100,000 – 20% = $80,000 x $15 per ticket (increase) = $120,000

QUESTION 5b: Reduce animals to 100 = one-time transportation cost of $1,000 each Actual Budget Variance Salary $80,000 $80,000 Assistant Keeper 100,000 100,000 Handler 100,000 100,000 Admin. 50,000 50,000 Benefits 130,000 130,000 Food 300,000 360,000 60,000 Overtime 100,000 100,000 Utilities 50,000 50,000 U.S. Trans 100,000 100,000 Fee 20,000 20,000 Total $1,030,000 $1,070,000 40 000 60,000 Food = (360 000/ 1200) x 100 = 300 000

F/U F U F U

Fee= 20 x 1000 = 20 000

QUESTION 5c: Fire 1 zookeeper = severance 10% salary, benefits 6 months Actual Budget Salary $80,000 $80,000 Zookeeper(s) 55,000 100,000 Handler 100,000 100,000 Admin. 50,000 50,000 Benefits 122,777.78 130,000 Food 360,000 360,000 Overtime 100,000 100,000 Utilities 50,000 50,000 Trans. 100,000 100,000 Total $1,017,777.78 $1,070,000

Variance 45,000 7,222.22 60,000 $52,222.22

F/U F F F F

Zookeeper = $50,000 for keeping 1 zookeeper Severance = $50,000 x 10% = $5,000 for the 2nd zookeeper Fringe Benefits = $130,000/9 total employees* = $14,444.44 per year per employee / $1,203.70 per month * 6 months = $7,222.22 *9 employees because: zoo director (1); zookeeper (1); assistant zookeepers (2); animal handlers (2) which is an assumption because the total salary for them was $100,000 and divided by 2 people seems like a reasonable full time salary; security, office, and support staff (3) which is an assumption because the total salary for them was $50,000 and divided by 3 people seems like reasonable part-time wages at $16,666.66 – any more than 3 people for this department would equate to unreasonable wages even for part-time as per https://www.ziprecruiter.com/Salaries/How-Much-Does-a-Part-Time-Worker-Make-a-Year--in-Michigan with the lowest part-time wages totalling $14,914 per year

After analyzing the three options presented above and according to our calculations, the most cost-effective decision would be to consider implementing the third option, where unfortunately, we’d be firing one of the assistant zookeepers. The variance is favourable, and therefore Kalamazoo Zoo will be saving money and costs will be decreasing....