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Charter school: static budget, breakeven, viable, benefits

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This case has two parts.

Part I.
Let's try to apply our knowledge of variable costing and review a sample budget for a charter school. This budget is prepared assuming three levels of student enrollment (66, 100 and 120). Revenue and expenses projections are shown in the budget. Operating assumptions are shown in "Schedule A".

The first requirement of this case relates to the planning function of a budget. Comment on the following relating to the charter school budget:

(1) Is this a static or flexible budget?
(2) What is total revenue (excluding grants) per student?
(3) What are total expenses per student?
(4) Do all expenses seem necessary?
(5) Is this school viable? How many students does the school need to break even (show your calculations with analysis and state your assumptions for break-even)?
(Note: For break even analysis - Ignore revenue received as "Grants" and "Startup Costs" (Schedule A).
(6) What are the general benefits of preparing this budget?
(7) Discuss how this budget is likely to be used for the control function.

Part II.
The second requirement of this case relates to the control function of a budget. Use the background material and Internet to answer the following questions.

(1) Variance analysis is a traditional tool used for planning and control. Comment on advantages and disadvantages of using this approach for performance evaluations.
(2) Do you have any suggestions for complementary or alternative performance measures?

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Solution Summary

Your tutorial is 582 words plus schedules in Excel to compute revenue per student, cost per student, total fixed costs and number of students to breakeven.

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Charter School Budget

PART I

(1) Is this a static or flexible budget?

This is a flexible budget because it adjusts the variable expenses expected based on the volume of students. The fixed costs are not sensitive to the volume of students and so do not change between a static and flexible budget.

(2) What is total revenue (excluding grants) per student?

See excel attached.

(3) What are total expenses per student?

See excel attached.

(4) Do all expenses seem necessary?

See excel attached.

(5) Is this school viable? How many students does the school need to break even (show your calculations with analysis and state your assumptions for break-even)?

(Note: For break even analysis - Ignore revenue received as "Grants" and "Startup Costs" (Schedule A).

See excel attached for breakeven analysis.

It takes 85 students to cover the fixed costs ignoring grants. There is a flexible ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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