Question

New Orleans Museum of Art

In 1911, NOMA opened its doors with 9 works of art in New Orleans. The museum currently has a $30 million endowment, but it also has substantial operating costs and continues to add to its collection that encompasses paintings, photographs, drawings, and design objects post-1900. Annual earnings from the endowment (approximately $2,500,000, in 2015) are not sufficient to cover operations and acquisitions, and the museum’s trustees and president are conscious of the need to generate income from admissions, special exhibits, and museum store sales.

                April Moore, photographic curator, is in the process of planning an exhibition of Ansel Adams photographs that will run from September through November 2016. Below is a preliminary budget prepared by April, of revenue and costs associated with the exhibition:

1.Estimated attendance is 10,000 and admission to the exhibit is $15.

2. Some photographs will come from the NOMA collection while others will be leased from other museums and collectors.

3.Cost of packing and transportation to and from NOMA.

4.Insurance to cover photographs during the run of the exhibition.

5.Twenty-five percent of annual salary for April and William, curator and assistance curator.

6.Cost of guard service for exhibition.

7.Painting of exhibition room to off-white background

8.Advertising in newspapers and public radio.

9.Cost of programs describing the work of Ansel Adams and pictures in the exhibition.

Additional Information

                In preparing the budget, April assigned 25 percent of her and her assistant’s annual salaries to the exhibition since they will each spend approximately 3 months on the project. An admission fee of $6 is charged to enter the museum, and attendance at the exhibition is an additional $15 per person. Approximately one fifth of the individuals who are estimated to attend the exhibition would have come to the museum whether the exhibition was being held or not. (Alternatively, four-fifths of the individuals are coming specifically to attend the exhibition.)

                Analysis of prior data indicates that 20 percent of individuals make a purchase at the museum store, and the average purchase price is $8. The store has a 30 percent gross margin (sales minus cost of sales) and profit (sales minus cost of sales minus staff salaries and other operating costs) per dollar of sales of 5 percent.

Required Questions to be answered:

1.Prepare an analysis of the financial impact of the exhibition on the MONA, assuming attendance is 10,000. Does offering the exhibition appear to be a good decision from a financial standpoint?

2. How many people must attend the exhibition for its financial impact to be profit neutral (i.e., the museum will not be better or worse off financially)?

Answer 1

Assumptions:

Particulars	Amount ($)
Assuming annual salary of April and William	120,000.00
Cost of parking and transportation	6,000.00
Insurance cost	3,000.00
Cost of guard service	1,200.00
Advertising costs	2,000.00
cost of program description by Ansel Adams	5,000.00
April's assistan annual salary	40,000.00

Financial impact of the exhibition in MONA:

Number of attendance	10,000.00
Admission fees (10000 x 6)	60,000.00
Exhibition attendance fees {(10000 x 1/5) x 15}	30,000.00
Sale of items {(10000 x 1/5) x 20%x 8}	3,200.00
Total revenue from Exhibition		93,200.00
Expenditures
Cost of sales (3200 x 70%)	2,240.00
Salary of April and William (120000 x 25%)	30,000.00
Cost of parking and transportation	6,000.00
Insurance cost	3,000.00
Cost of guard service	1,200.00
Advertising costs	2,000.00
cost of program description by Ansel Adams	5,000.00
April's assistant annual salary (40000 x 25%)	10,000.00
		59,440.00
Profit from exhibition		33,760.00

Thus, as can be seen that the financial impact of the exhibition is positive on the financial performance of MONA.

No. of attendees to the museum	10000	1
Number of attendees to the exhibition (10000 x 1/5)	2000	0.2
Purchasers in the museum (2000 x 20%)	400	0.04
Total attendees in total in all three aspects of revenue	12400	1.24
Fees from attendees:
Museum (10000 x 6)	60000
Exhibition (2000 x 15)	30000
Gross profit from sales in the museum (3200 -2240)	960
	90960
Contribution per attendees (90960 / 12400)	7.33548387
Profit from exhibition	33,760.00
Contribution per attendees (90960 / 12400)	7.33548387
Profit contribution came from (33760 / 7.33548387)	4,602.29
Number in attendees in museum (4602.29/1.24)	3,711.52
Approximately	3712 attendees
Thus, number of attendees that must visit the museum (10000-3712) =	6288