The Kalamazoo Zoo
It was a cold drizzly morning in early March 2016 when Rory Lyons, the director of the Kalamazoo Zoo, received the zoo's financial information for the year ending December 31, 2016.
The situation was quite different from what Rory had expected. As he folded his umbrella, he wondered whether the strange weather patterns were responsible for the big variances in the budget.
It had indeed been a peculiar year, weather-wise, in Kalamazoo. The winter had been the wettest on record, while the spring and summer had been unusually warm and balmy. The winter storms had forced the zoo to close for more days than originally planned. But the frisky spring weather had produced an unexpected success in the animal-breeding program.
Kalamazoo, a city in the state of Michigan, was facing a tough economic environment. This year, the zoo itself had received more state aid than expected, largely due to a renovation grant for its facilities.
However, the overall budget situation was difficult. The state was reducing the amount of local aid it provided to the cities, forcing the city of Kalamazoo to reconsider many of its popular recreation activities. The Mayor had just called an emergency meeting to discuss the city's financial situation. Rory was asked to give a detailed presentation on the zoo's financial health and to present a preliminary budget for the next financial year.
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Table 1: All Figures in $ KALAMAZOO ZOO Financial Statement 2016
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Revenues:
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ACTUAL
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BUDGETED
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Gate Ticket Revenue from visitors
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100,000
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120,000
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License Revenue from the food court
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100,000
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100,000
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Donations from individuals
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50,000
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100,000
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Grants for the Tiger Conservation Project*
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180,000
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150,000
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Grants for the Rhino Conservation Project*
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100,000
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100,000
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Grants for the Yellow-billed Cuckoo Conservation Project*
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120,000
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100,000
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Subsidies from the state government
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200,000
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150,000
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* Funds received directly from Federal government
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Total Revenues
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850,000
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820,000
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Expenditures:
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Salary of Zoo Director
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80,000
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80,000
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Salaries for Assistant Zoo Keepers (2 total)
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100,000
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100,000
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Wages and Salary for Animal Handlers
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100,000
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100,000
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Security, Office and Support staff Wages
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50,000
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50,000
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Fringe Benefits cost for employees (health insurance, etc.)
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130,000
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130,000
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Food and Provision costs for animals
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360,000
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240,000
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Overtime costs
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100,000
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40,000
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Utilities
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50,000
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30,000
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Transportation and facilities for visitors
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100,000
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50,000
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Total Expenditures
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1,070,000
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820,000
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QUESTION: 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:
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.