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Midterm On Budgeting And Financial Analysis

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Budgeting and Financial Analysis
Midterm Exam
Maximum Grade: 20 points; Due 11.59 PM, October 17, 2021
Submit through the Submission Link on the Blackboard
a. This exam is made up of two sections. Section I is comprised of four short descriptive
questions and Section II is comprised of three problems that involve calculations.
b. Submit answers in a word or pdf file (no JPEGs please). You may paste photos of your
work in word file. You may also use Adobe Scan or other scanning apps.
c. You may attach excel to show your work, but I won’t grade excel. If you decide to use excel
for some calculations, please copy the formula to the answer-sheet.
d. If you write the final answer without showing your steps or excel formula, you may not
receive the full grade.
1. A political scientist and a budget analyst walked into a bar. The political scientist makes
an argument that the budget-making process is ‘all’ about politics. The budget analyst, on
the other hand, argues that politics is an important part of the process, but the budget
process has four key steps, and some of these are less political than others. Which four
steps in the budget cycle is the analyst referring to? Explain each step in 1-2 lines. Also,
briefly mention which steps you think are influenced relatively more by politics. (2 pts)
2. In one or two lines each, explain various kinds of costs that we have discussed in the
class: (a) fixed cost, (b) variable cost, (c) total cost, (d) average total cost, (e) marginal
cost, (f) direct cost, (g) indirect cost, (h) opportunity cost. (2 pts)
3. During this semester, we have discussed several approaches to budget making. Briefly,
summarize the following three budgeting approaches. (2 pts)
a. Performance budgeting
b. Zero-based budgeting
c. Participatory budgeting
4. In his 1959 book, The Theory of Public Finance, Richard Musgrave conceptualized the
problem of public finance into three key branches and outlined the role of government in
the economy. List the three main roles of government in the economy as outlined by
Musgrave, and summarize each in 2-3 lines. (2 pts)

Ozkan Serenli

Ozkan Serenli

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5. Breakeven Analysis for Lexington Academy
In a recent report (
A-True-Cost-Analysis-March-2019.pdf), Seachange Capital Partners – a consultancy that
works with several nonprofits in the NYC area notes:
“New York City is now embarking on an ambitious plan to promote quality
early childhood education through the establishment of a unified contracted
early childhood education system managed by the New York City
Department of Education (DOE). A key part of the City’s work to promote
early childhood education will be new procurements of all contracted early
childhood education programs… These new procurements represent the
largest reorganization of early childhood contracts … and the continuation
of the most rapid expansion of contracted early childhood programs since
the City began contracting with settlement houses and other community-
based early childhood programs during the mayoralty of Fiorello
Under the new program, assume that the NYC DOE has decided to provide a per-
student contribution, and the costs associated with providing the services for
“Lexington Academy” are listed below across the three programs: Pre-K for All,
Headstart, EarlyLearn. The table shows the common expenses and costs for each
of three units within the Academy that provide services to kids of different ages.
a. After reading the entire question, identify the mission centers (0.5 point)
b. Fill up the box below. Classify the costs you see in Table 1 into these boxes
(just their names, not the amounts!) (0.5 point).
Fixed Costs Variable
Direct Costs ???? ???
Costs ??? ???
c. Lexington Academy maintains data for each line item by all three units in
the organization. However, the information about total spending on
“Management and Payroll” and “Building Maintenance and Rent” is
available for the entire organization. Convert these indirect costs to direct
costs for each mission center using “Number of Teachers” as the cost
allocation factor for “Management and Payroll” (not their salary!) and
“Number of Classroom Used” as the Cost Allocation Factor for “Building
Rent and Maintenance.” (2 points)

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d. Assume that each teacher is paid $55,000 and each kitchen staff is paid
$35,000. The organization considers these as fixed costs since they are not
hiring more people. The spending on Kitchen and classroom supplies
depends on the number of kids and data is available monthly. Given the
DOE contribution in the table (price), calculate the breakeven quantity or
number of kids that each mission center should enroll to achieve zero
funding gap. (3 points)
Table 1: FY 2021 – Expenses for Lexington Academy
Management and Payroll
Building Rent and
Pre-K for
(4-5 year
(3 year
(0-3 year
No. of Teachers ($55,000
each) 4 3 2
No. of Classrooms Allocated 3 2 1
Kitchen Staff ($35,000 each) 1 1 1
Monthly Kitchen Supplies
Per Student $42 $36 $23
Monthly Classroom Supplies
Per Student $32 $26 $17
DOE Contribution Per
Student Per Year
$6,700 $6,200 $5,200
Note: (a) Use DOE contribution as “the price” in the calculations. (b) Both of the variable costs are
available monthly, convert them to annual.

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6. Utility Company Settlement
In July 2021, New York State Reached a $86 million settlement with utility companies
for failures during natural emergencies and inadequate emergency response plans
utilities-to-pay-86m-in-settlements-over-isaias-storm-failures-65516667. Assuming that
Con Edison was required to pay a total $80.0 million for Isais response failures and steam
outages of 2018 and Central Hudson would pay $2 million, and Frontier Inc would pay
$4 million in the settlement. They were offered two choices (a) immediate payment of 90
percent of the total liability or (b) immediate payment of 40 percent of the liability in
October 2021, and 20 percent paid during the last quarter of next three years (October
2022, October 2023, and October 2024). Assuming a discount rate of 12 percent, which
alternative should EACH of these companies choose and why (show your steps)? (3 pts)
7. The Cost of Hy-Flex Classroom
Baruch College intends to hire a vendor to facilitate the upgrade of vertical campus
classrooms to HyFlex to facilitate more integration in online and in-person instruction.
The project intends to install new cameras, microphones, screens, and projectors in the
classroom that could be used to create seamless livestreams and two-way communication.
Two companies have submitted the bids as shown below: Jobs Inc. has quoted a lower
installation cost and higher maintenance cost per classroom, while the Gates Inc. has
quoted a higher installation cost and lower maintenance cost. Which option is better from
Baruch’s perspective assuming a discount rate of 8 percent and taking into account the
time value of money? (3 pts)
Jobs Inc. Gates Inc.
Installation Cost
(Paid in October 2021) $ 20,000 $27,500
Maintenance Year 1
(Paid in October 2022) $7,000 $4,500
Maintenance Year 2
(Paid in October, 2023) $7,000 $4,500
Maintenance Year 3
(Paid in October, 2024) $7,000 $4,500
Total $41,000.00 $41,000.00
(Note: You do not need excel to solve this. However, if you want to use excel you can also do that.)

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