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The Kalamazoo Zoo

QUESTION 1:
Perform a revenue and expenditure variance on the 2009 Kalamazoo budget based
on the information provided in Table 1. State whether the revenue variance is
favorable or unfavorable. State whether the expenditure variance is favorable or
unfavorable. Use template #1 below to guide your analysis.

Variance type actual budget Variance Favorable/unfavorabl

amount e
Revenue 850,000 820,000 30,000 favorable
variance
Expenditure 1,070,000 820,000 250,000 unfavorable
variance

QUESTION 2:
Using the additional operating data on Kalamazoo provided in Table 2, compute
revenue quantity variance and price variance for annual ticket revenue and state
whether each is favorable or unfavorable. What do we know about the zoo from
doing this analysis?

Revenue Actual Budgeted Budgeted Variance Favorable/

Variance quantity quantity price unfavorable

quantity 10,000 15,000 $8.00 $40,000 Unfavorable

Revenue Actual Budgeted Actual Variance Favorable/

Variance price price quantity unfavorable

Price $10 $8 10,000 $20,000 Favorable

For quantity based revenue variance, the result is related to the quantity of actual visitors
and budgeted visitors. From the analysis we can know how the revenue changes along
with the quantity change of visitors. For price based revenue variance, the resulted is
related to the difference between the actual price and the budgeted price. From the
analysis we can know how the revenue change along with different ticket price.

QUESTION 3:
Using the data provided in Table 2, compute expenditure quantity and price
variance for animal food expenditures and state whether each is favorable or
unfavorable. What do we learn about the Zoo from doing this analysis?

Revenue Actual Budgeted Budgeted Variance Favorable/

Variance quantity quantity price unfavorable
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quantity 120 100 $2,400 $48,000 Unfavorable

Revenue Actual Budgeted Actual Variance Favorable/

Variance price price quantity unfavorable

Price $3,000 $2,400 120 $72,000 Unfavorable

The expenditure for animal food depend on two factors: the quantity of animals and
the price of the food. The expenditure will increase with the increase of either animals
food or the amount of animals.
The price related variance will change if the food price changed or the mount of
demand increase. For example, because of the winter storms, the weather is more cold
than usual. This may bring a result that the animals need more food to keep their warm.
On the other hand, the more demand of the food may also cause by the increase of the
amount of baby animals. The quantity variance depends on the change of the quantity of
animals. In the chart we can see, the actual quantity is more than budget quantity. The
reason behand the amount change can be varying. As says in the case: the weather brings
a great success in the animal-breeding program, there are new baby animals in the zoo.
Another reason for the difference may be because the zoo bought new animals this year.

QUESTION 4:
What is the overall situation at the zoo that we see from performing these
variances? Reviewing these issues and the budget, what else should Rory Lyons
investigate? What information is needed to be able to perform these analyses?

After reviewed the several variances, I found the zoo has more unfavorable than
favorable. First, the number of visitors has a one third less than budgeted. Although the
actual ticket price is higher than budgeted price, the zoo still got a $20,000 lose on their
revenue.
Another unfavorable is the expenditure for animals food. With more babies
breeding, the cost of the food increased. While, I personally think this may not a bad
thing. If the zoo agree, they can sell the babies to other zoos, then get a profit. The profit
they get from selling the babies must higher than the food price they feed the babies.

Donations Actual Budget Budgeted Variance Favorable/Unfavorable

Variance Quality Quantity Price

Quantity 1,000 500 $200 $100,000 Favorable

Donations Actual Budget Actual Variance Favorable/Unfavorable

Variance Price Price Quantity

Price $50 $200 1000 $150,000 Unfavorable

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Moreover, from the data of the zoo, there will be a 500 increase in the number of
donations which will brings a $100,000 profit to the zoo. While, the value of each
donation will decrease $50, which will bring a $150,000 unfavorable loss. As a result of
these, the zoo will have a $50,000 unfavorable variance.
In addition, the actual overtime cost $100,000 is too much more than the budgeted
$40,000, which may bring more pressure to the revenue. Rory Lyons should consider
some strategies like: setting limits and rotation system.

QUESTION 5:
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%.
Varianc
Revenue: Actual Calculation Budget FV/UN
e
Tickets 120,000 8000*15 100,000 20,000 FV
License 100,000 100,000
Donations 50,000 50,000
All Grants 400,000 400,000
subsidies 100,000 200,000 100,000 UN
Total Revenue 770,000 850,000 -80,000 UN

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.

Varianc
Expenditures: Actual Calculation Budget FV/UN
e
Salary 80,000 80,000
assistant keeper 100,000 100,000
Animal Handlers 100,000 100,000
Security 50,000 50,000
Fringe Benefit 130,000 130,000
Food 300,000 3000*100 360,000 60,000 FV
Overtime Cost 100,000 100,000
Utilities 50,000 50,000
Transportation 100,000 100,000
Host Program 20,000 20*1000 0 20,000 UN
Total
1030,000 1070,000 40,000 FV
Expenditure
-60,000 UN
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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.

Varianc
Expenditures: Actual Calculation Budget FV/UN
e
Salary 80,000 80,000
assistant keeper 55,000 50000+0.1*50000 100,000 45,000 FV
Animal Handlers 100,000 100,000
Security 50,000 50,000
Fringe Benefit 121,875 130000/8*7.5 121,875 8125 FV
Food 360,000 360,000
Overtime Cost 100,000 100,000
Utilities 50,000 50,000
Transportation 100,000 100,000
Total 1016,87
106,875 531,125 FV
Expenditure 5
-46,875 UN

We can see from the charts, the results for the three options are all unfavorable. I
personally recommend Rory Lyons choose the option 3, as it has the least unfavorable
variance.