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KALAMAZOO Case Study Solution

The Kalamazoo Zoo is facing reduced government funding due to economic conditions. At a meeting, the zoo director Rory Lyons was tasked with presenting a preliminary budget and analyzing the zoo's financial health using its 2009 financial statements. Variance analyses showed the zoo underbudgeted for animal food costs, leading to unfavorable variances. Rory should investigate expenses like overtime costs and work with management to reduce animal costs and address budget issues. Given an expected $100,000 reduction in subsidies, Rory should recommend increasing ticket prices to $15 to close the budget shortfall.

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713 views13 pages

KALAMAZOO Case Study Solution

The Kalamazoo Zoo is facing reduced government funding due to economic conditions. At a meeting, the zoo director Rory Lyons was tasked with presenting a preliminary budget and analyzing the zoo's financial health using its 2009 financial statements. Variance analyses showed the zoo underbudgeted for animal food costs, leading to unfavorable variances. Rory should investigate expenses like overtime costs and work with management to reduce animal costs and address budget issues. Given an expected $100,000 reduction in subsidies, Rory should recommend increasing ticket prices to $15 to close the budget shortfall.

Uploaded by

Sanskriti sahu
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© © All Rights Reserved
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MANAGERIAL ACCOUNTING

CASE STUDY
THE KALAMAZOO ZOO

OVERVIEW OF THE CASE


Introduction:
The Kalamazoo Zoo is a local zoo in Kalamazoo, Michigan
Through grants, subsidies, and other sources of income, the city of Kalamazoo partially finances the zoo.
The state's contributions account for a sizable portion of the zoo's annual income.

Problem Statement:
Kalamazoo zoo would have to accept reduced state and municipal help from the government because Kalamazoo is
experiencing a complex economic condition.
Kalamazoo's mayor convened an urgent meeting to discuss the city's present financial crisis. The Kalamazoo Zoo's financial
results for the year ending December 31, 2009, were delivered to the zoo's director, Rory Lyons, in March 2010. Rory Lyons
was tasked with preparing a presentation and presenting a preliminary budget at the meeting, debating the zoo's financial
health and the predicted budget for the following year using the financial data included in the financial statements. The
Kalamazoo Zoo's financial data is the subject of this litigation.
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 favourable or unfavourable. State whether the expenditure variance
is favourable or unfavourable. Use template #1 below to guide your analysis little bit of body text
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 favourable or unfavourable.
What do we know about the zoo from doing this analysis?
Tickets sold at $8 each:

When tickets were sold at $8 each, the zoo undersold by 5,000 tickets, creating a price variance of
$40,000 in total.
This is unfavourable because they expected to sell 15,000 tickets but only 10,000.
This could be due to the cost of the tickets or other factors such as the weather.

Price of each ticket increased to $10:

If they increase the price per ticket to $10 from the previous $8, assuming they could reach a total number
of 10,000 tickets sold rather than the last 15,000 tickets, their new variance in dollars would only be
$20,000.
However, this is, in fact, favourable. It is a favourable variance because the zoo sells each ticket at an
increase of $2 while maintaining ticket sales of 10,000.
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?
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

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?

The overall situation of Kalamazoo Zoo seems as though it's going downhill. The analyses above show that
although revenues have increased ever so slightly, the organization's total expenses (specifically everyday
expenditures, including animal food) have increased substantially. The costs were budgeted for $820,000, but
what was spent was $1,070,000. That's a $250,000 increase, which shows that there may be issues in the
organization. It's possible that there weren't clear sightlines between the zookeepers, management and the
budgets. They may have misunderstood or completely deviated/failed to budget their expenses or 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 around the animals themselves.
These variances were 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 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:

A-Increase the ticket price to $15.00


B-Reduce the number of animals to 100. There would be a one-time transportation cost of $1000 each.
C-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.
A-Increase the ticket price to $15.00
B-Reduce the number of animals to 100. There would be a one-time
transportation cost of $1000 each.
C-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.
Thank you

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