The Department of State Parks and Forests has been notified that that will have
ID: 2717914 • Letter: T
Question
The Department of State Parks and Forests has been notified that that will have a annual 10% budget cut to their requested three year state revenue of $27.5 million per year. That is, a 10% reduction in year 1, another 10% in year 2, and yet another 10% in year 3. They have been instructed to start charging entry fees for all State Parks as well as cut staff to make up the difference. Added staff will be needed to collect the fees and process them according to state regulations. The alternative of simply closing some parks is deemed not politically acceptable.
The fee must be constant for all three years. The number of people using the park system is estimated to be constant at 350,000 per year.
Additional staff will be needed to collect the fees and process them according to state regulations. This is expected to cost $100,000 annually. Also toll booths will be needed at a cost of $1 million in year 1.
Part-time summer workers will replace some year-round employees., which is expected to reduce the annual Staff cost by 15%.
Operating costs are not determined by the frequency of use since garbage pickup cost the same if containers are full or half-full. Trail maintenance, life-guarding, etc. do not change based on frequency of use as well. So all costs are treated as S.G.&A.
Investment planned for new equipment will be cut in half, but this will increase equipment maintenance cost by 25%.
Depreciation is not considered by the department since it is non-profit and therefore does not pay taxes. Therefore, investments in new machinery are recorded as expenses in the income statement, and the Net Income becomes the Cash Flow.
The state uses a three-year budgeting cycle. In any one year, the cash flow can vary from state funding by 10%, but over the three-year budget period, the cash flow must sum to zero (no time value of money considerations). The question spreadsheet is attached.
a. Alter the income statement below to fit the new budget situation.
b. Determine the entrance fee per park users would have to pay to cover the loss in state funding and to avoid deficit spending for the sum of the three years cash flow.
Requested Budget $27,500,000 State budget cut 10% annually Estimated annual users 350,000 constant in all years Fee $0.00 per person Fee collection cost $100,000.00 annually Toll Booths $1,000,000.00 year 1 Staff savings 15% annually Investment reduction 50% annually Maintenance increase 25% annuallyExplanation / Answer
The Department of State Parks and Forests has been notified that that will have
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