BU Accounting Acsh-Budget Discussion
Description
- Part 2 – Building a Programmatic
Budget – 4 points
You’ve
been asked by the Executive Director of the Alphabet City Settlement House
(ACSH) to prepare an annual budget, to send to a potential foundation funder,
for a new Preschool Learning Program (PLP) for neighborhood children. The
foundation has a general policy of paying an overhead rate of 10% of total
costs, which is intended to cover administrative costs incurred by the grantee
organization. You will need to factor
that overhead figure into the budget you provide. The foundation also has a policy requiring
grantees to match the amount the foundation funds, by raising an equal amount
from other new gifts or grants specifically for the program. No such gifts or grants have been raised
yet. The PLP is being given the free use
of space (two rooms), including utilities, by ACSH. Each room has an occupancy limit of 35
people (Teacher, two Teaching Assistants, and 32 children) and would otherwise
cost $16,000 annually to rent, including utilities. (This would not count toward the match.) The other costs are as follows:
Personnel
Service Costs:
5% of the Executive Director’s time @ $160,000, 10% of a Program Coordinator’s
time @ $80,000; 100% of two new Teachers @ $60,000 each; 100% of four new
Teaching Assistants @ $30,000 each. State
licensing requirements mandate a second Teaching Assistant when the number of
children in a class exceeds 20. The fringe benefit rate is 25%.
Other-than-Personnel
Service Costs: Books and other supplies, $600 per child. New audiovisual equipment, $7,500 per
classroom (assume these items are below ACSH’s capitalization threshold).
In-kind use of space/ utilities – see above.
In
the program’s first year, ACSH expects to have 55 children in the program. How much money should ACSH request from the foundation,
including the overhead amount, and how much would ACSH also have to raise to
meet the matching requirement, to allow the program to break even? Prepare a line-item budget to support the
request. Please round to the nearest
dollar (if necessary).
Part
3 – Deciding on the Level of Activity of a Program – 4 points
ACSH
was unsuccessful in obtaining the foundation grant that they tried to solicit
in Part 2, but it was able to raise a $150,000 gift for the new program from a
generous donor. Wanting to take
advantage of that and get the program going, the Executive Director was able to
convince the Board to make enough funding available out of the Organization’s
unrestricted reserves to fund the incremental costs associated with the
program, to allow it to get underway with a target of 30 children during the
first year.
The
Executive Director wants to know the answer to three questions:
(1)
If
we ignore the overhead component of costs, as well as the allocation of
existing staff, how much money must ACSH make available to the program out of
reserves to allow it to break even using the complement of new staff and
classrooms/ related costs that was contained in the program budget sent to the
foundation?
(2)
Otherwise
using the same assumptions as in (1), if ACSH wanted to adjust the costs
(number of new staff and classrooms/ related costs) to the minimum
needed to teach the 30 children, how much would ACSH have to make available to
the program out of reserves to allow it to break even?(3)
Otherwise
using the same assumptions as in (2), if ACSH chose to charge the parent(s) of each
child a fee instead of making reserves available, how much would ACSH have to
charge per child to allow the program to break even? Would the contribution margin be positive or
negative?Please
explain your answers, with appropriate calculations where necessary. Please round to the nearest dollar (if
necessary).
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