Please read through the case and tables. ONLY ANSWER QUESTION 1 PART A AND E. ONLY A AND E DO NOT ANSWER B,C OR D. DO NOT ANSWER QUESTION 2 AT ALL. Please be sure to elaborate throughly on the answers and make tables if needed. Please show all work. This may be done on excel or Word. Only answer question 1 part A and E.
KS1124 Case Number 2034.0 ______________________________________________________________________________________________ This case was written by Linda Bilmes, Daniel Patrick Moynihan Senior Lecturer in Public Policy at the Harvard Kennedy School of Government. HKS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2015 by the President and Fellows of Harvard College. No part of this publication may be reproduced, revised, translated, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording, or otherwise) without the written permission of the Case Program. For orders and copyright permission information, please visit our website at www.case.hks.harvard.edu or send a written request to Case Program, John F. Kennedy School of Government, Harvard University, 79 John F. Kennedy Street, Cambridge, MA 02138. The Toliza Museum of Art In early 2009, Juan Antonio Jimenez has just begun his new position as Executive Director of the Toliza Museum of Art (“Toliza”). Toliza is a beautiful art museum located in the city of Toliza, Spain. Toliza’s art collection includes a wide variety of classic and contemporary art, all housed in a forty-room museum and sculpture garden in the heart of the city. Toliza displays its art to the public in two ways: Regular Exhibits and Special Exhibits. Regular Exhibits are displayed throughout the year and feature pieces from the museum’s permanent collection, which focuses on art from the Toliza area. Special Exhibits are limited-time only displays (often four to six weeks in duration) featuring pieces by renowned artists that are on loan from other museums. When Jimenez was hired as Executive Director, the Board of Directors made it clear to him that his first priority should be to analyze the museum’s finances. The Board was concerned about the museum’s financial performance in 2008, when Toliza operated at a deficit despite putting on three well-received Special Exhibits. Toliza’s revenues came from: admissions fees, exhibits, annual memberships, donations and government grants. The expenses are primarily labor costs. In addition to Jimenez, Toliza’s senior management team includes one Director of Development and one Head Curator. Other employees include four administrative staff members, seventy professional curating staff and numerous security and maintenance staff who are paid on an hourly basis. There are currently eighty-nine individuals who work part-time on security. As Jimenez strolled through one of the museum’s special exhibition halls—currently featuring the early works of Pablo Picasso—he began to wonder what had caused the museum’s deficit in 2008 and what financial results could be expected in 2009. Upon reaching his office, he set about to answer these questions, beginning with a review of the financial and operating data presented in Table 1. For the exclusive use of M. Bonner, 2021. This document is authorized for use only by Monica Bonner in Costs/Budgets 2021 Spring taught by YONG GYO LEE, University of Houston from Jan 2021 to Jul 2021. HKS Case Program 2 of 6 Case Number 2034.0 Table 1: Audited Financial and Operating Statement, 2008 (in €) Revenue 2008 Budget 2008 Actual Museum Admissions € 10,000,000 € 12,000,000 Special exhibit admissions 3,000,000 3,344,000 Annual memberships 1,560,000 1,335,000 Donations 7,500,000 7,224,500 Government grants 7,000,000 6,876,000 Total € 29,060,000 € 30,779,500 Expenses Executive Director (salaried) € 250,000 € 250,000 Director of Development (salaried) 150,000 150,000 Head Curator (salaried) 125,000 125,000 Administrative Staff (salaried) 120,000 120,000 Fringe for salaried employee @40% of salary 258,000 258,000 Curatorial Staff (paid hourly) 2,080,000 2,653,350 Security Guards (paid hourly) 2,028,000 3,304,100 Insurance 4,750,000 6,500,000 Maintenance 1,150,000 1,175,600 Utilities 3,450,000 5,236,500 Mortgage 12,000,000 12,000,000 Total € 26,361,000 € 31,772,550 Total Surplus /(Deficit) € 2,699,000 (€ 993,050) Operating Data Operations Museum admissions (# of visitors) 800,000 1,000,000 Special exhibit admissions (# of visitors) 150,000 167,200 Annual memberships sold (# sold) 20,800 17,800 Pieces of art work on display Regular Exhibits 200 210 Special Exhibits 100 105 Total pieces on display 300 315 Total hours worked by curators Regular Exhibits 72,000 76,681 Special Exhibits 32,000 62,969 Total curatorial hours 104,000 139,650 Total hours worked by security guards Regular Exhibits 100,000 107,101 Special Exhibits 35,200 71,449 Total security guard hours 135,200 178,600 For the exclusive use of M. Bonner, 2021. This document is authorized for use only by Monica Bonner in Costs/Budgets 2021 Spring taught by YONG GYO LEE, University of Houston from Jan 2021 to Jul 2021. HKS Case Program 3 of 6 Case Number 2034.0 QUESTION 1 a. Prepare the total revenue, expense and surplus/deficit variances using the template, and indicate whether each of the variances is favorable or unfavorable. Actual Budgeted Variance F/UF Revenue 30,779,500 29,060,000 Expense 31,772,550 26,361,000 Surplus/Deficit -993,050 2,699,000 b. Calculate the price, quantity, and total variance for “Museum Admissions” revenue (per visitor). Actual Price Budgeted Price Quantity Variance F/UF Price variance Actual Quantity Budgeted Quantity Price Variance F/UF Quantity variance Actual Budgeted Variance F/UF Museum admissions variance c. Calculate the price, quantity, and total variance for “Curatorial Staff” expense (per hour). Actual Price Budgeted Price Quantity Variance F/UF Price variance Actual Quantity Budgeted Quantity Price Variance F/UF Quantity variance Actual Budgeted Variance F/UF Curatorial Staff variance For the exclusive use of M. Bonner, 2021. This document is authorized for use only by Monica Bonner in Costs/Budgets 2021 Spring taught by YONG GYO LEE, University of Houston from Jan 2021 to Jul 2021. HKS Case Program 4 of 6 Case Number 2034.0 d. Based on your analysis in parts (b) and (c), how can you explain the difference between the actual and budgeted amounts for the following items? i. Museum Admissions revenue ii. Curatorial Staff expense e. In an effort to increase revenue, Jimenez is considering increasing the discounted admission price that is available to students and senior citizens. In 2008, a total of 300,000 visitors paid the reduced admission price of €5, while a total of 700,000 visitors paid the regular admission price of €15. Jimenez would like to increase the applicable price for students and senior citizens to €10, but if he does so, he believes that the total number of visits by students and senior citizens would fall by 10%. Estimate the total impact on 2008 revenues had the discounted admission price been increased for all of 2008. (By how much would it increase/decrease had this change been in effect for all of 2008?) [Note: Use reverse of page if needed] QUESTION 2 (Parts a, b, c, d, and e) Jimenez wanted to conduct a more detailed analysis of the museum’s cost structure. Specifically, he wanted to gain a better understanding of the cost to the museum of putting on Special Exhibits. Special Exhibits were often popular with the media and the general public, but Jimenez worried that they might be a financial burden on the museum. To determine the cost of Special Exhibits, Jimenez decided to use activity-based costing. His first step was to compile a table listing the allocation of each expense category to one of four activities: 1) Regular Exhibits 2) Special Exhibits 3) Curatorial Activities 4) Security Activities Jimenez could allocate certain costs directly to either Regular Exhibits or Special Exhibits, but many expenses could only be allocated to either the Curatorial Activities cost pool or the Security Activities cost pool. As a result, he needed to calculate the total cost of each cost pool and then use the appropriate cost driver to allocate the cost pool to either Regular Exhibits or Special Exhibits. He could then calculate the fully-loaded cost of Regular Exhibits and Special Exhibits and compare those costs to the revenue associated with each program. Table 2 outlines the information he has collected for his analysis. For the exclusive use of M. Bonner, 2021. This document is authorized for use only by Monica Bonner in Costs/Budgets 2021 Spring taught by YONG GYO LEE, University of Houston from Jan 2021 to Jul 2021. HKS Case Program 5 of 6 Case Number 2034.0 Table 2: Activity Cost Pool Allocation (%) Regular Exhibits Special Exhibits Curatorial Activities Security Activities Executive Director & fringe 35% 30% 20% 15% Director of Development & fringe 55% 35% 5% 5% Curatorial Director & fringe 0% 0% 100% 0% Administrative Staff & fringe 35% 30% 20% 15% Curatorial Staff 0% 0% 100% 0% Security Guards 0% 0% 0% 100% Insurance 50% 50% 0% 0% Maintenance 67% 33% 0% 0% Utilities 50% 50% 0% 0% Mortgage 67% 33% 0% 0%