Reference no: EM131609757

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.

Table 1: All Figures in $ KALAMAZOO ZOO Financial Statement 2016
Revenues:	ACTUAL	BUDGETED
Gate Ticket Revenue from visitors	100,000	120,000
License Revenue from the food court	100,000	100,000
Donations from individuals	50,000	100,000
Grants for the Tiger Conservation Project*	180,000	150,000
Grants for the Rhino Conservation Project*	100,000	100,000
Grants for the Yellow-billed Cuckoo Conservation Project*	120,000	100,000
Subsidies from the state government	200,000	150,000
* Funds received directly from Federal government
Total Revenues	850,000	820,000
Expenditures:
Salary of Zoo Director	80,000	80,000
Salaries for Assistant Zoo Keepers (2 total)	100,000	100,000
Wages and Salary for Animal Handlers	100,000	100,000
Security, Office and Support staff Wages	50,000	50,000
Fringe Benefits cost for employees (health insurance, etc.)	130,000	130,000
Food and Provision costs for animals	360,000	240,000
Overtime costs	100,000	40,000
Utilities	50,000	30,000
Transportation and facilities for visitors	100,000	50,000
Total Expenditures	1,070,000	820,000

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.