Question

Prepare a statement of functional expenses for the following entity using the following information.

Charlie Counseling Center was incorporated as a not for profit entity 10 years ago. It’s adjusted trial balance as of June 30, 2018 is:

Charlie Counseling Center
Adjusted (Pre-Closing) Trial Balance
as of June 30, 2018
	Debit	Credit
Cash and cash equivalents	126,500
Pledges receivable	41,000
Estimated uncollectible pledges		4,100
Inventory - supplies	2,800
Long-term investments, at fair value	178,000
Capital assets, net of accumulated depreciation	90,000
Accounts payable		20,520
Unrestricted net assets		196,500
Donor restricted net assets		190,500
Contributions - unrestricted		348,820
Contributions - restricted		38,100
Investment Income - Unrestricted		9,200
Net assets released from restrictions - Donor Restricted	22,000
Net assets released from restrictions - Unrestricted		22,000
Salaries and Fringe Benefits Expense	288,410
Occupancy and Utility Expense	38,400
Supplies Expense	6,940
Printing and Publishing Expense	4,190
Telephone and Postage Expense	3,500
Unrealized Gain on Investments		2,000
Depreciation Expense	30,000
Totals	831,740	831,740

Salaries and fringe benefits were allocated to program services and supporting services in the following percentages:

Counseling services 40

Professional training 20

Community Service 10

Management and General 20

Fund Raising 10.

Occupancy and utility, supplies, printing and publishing, and telephone and postage expenses were allocated to the programs in the same manner as salaries and fringe benefits. Depreciation expense was equally split among all five functional expense categories.

Prepare a statement of functional expenses from the information provided. Tell me if the program expense ratio is good relative to Charity Navigator's recommended 80% threshold.

Answer 1

Statement of functional expenses of Charlie Counseling Center as on 30th June, 2018:

Expenses	Counseling Services	Professional Training	Community Service	Management and General	Fund Raising	Total
Salaries and Fringe Benefits Expense (40:20:10:20:10)	115364	57682	28841	57682	28841	288410
Occupancy and Utility Expense (40:20:10:20:10)	15360	7680	3840	7680	3840	38400
Supplies Expense (40:20:10:20:10)	2776	1388	694	1388	694	6940
Printing and Publishing Expense (40:20:10:20:10)	1676	838	419	838	419	4190
Telephone and Postage Expense (40:20:10:20:10)	1400	700	350	700	350	3500
Depreciation Expense (20:20:20:20:20)	6000	6000	6000	6000	6000	30000
Total	142576	74288	40144	74288	40144	371440

Observation:

The efficiency of charity is not just about minimizing administrative and fund raising expenses. Efficiency is ultimately about choosing the best strategy to accomplish the non profit’s goals. In order to achieve it, Charity should expend more on fund raising activity as compared to current scenario. Also, expenses in Management and general should be minimized. Apart from these, Counseling Services, Professional Training and Community Service expenses are good in order to achieve the non-profit organization goals. Relatively the expense ratio is not good. According to maximize the outcome, expenses ratio should be:

Counseling Services (35%), Professional Training (15%), Community Service (20%), Management and General (10%) and Fund Raising (20%)