Prater Museum is a state-owned gallery that exhibits one of the best permanent collections of 19- 20th Century paintings. In addition, Prater usually organizes special exhibitions. As a consequence of the economic downturn, the Prater’s finances were under scrutiny - tourism slumped and the donors froze or cancelled their contributions. Prater’s financial situation was therefore deteriorating, which brought management’s attention to the financial viability of special exhibitions. In January 2009, one special exhibition was under display and another one was organized for autumn. In order to avoid further potential financial risks, nothing else was under consideration for the summer. On January 24, 2009 the David Gallery, which comprised a wonderful collection of 19-20th Century impressionists, had a fire that destroyed its building completely. Fortunately, the entire collection was saved; in fact there was no damage at all. The management of the David Gallery contacted their counterparts at Prater’s to inquire if they would be interested in hosting the David’s collection while their building was rebuilt. The Director of the Prater Museum thought that this would be a great opportunity to fill in the gap of the summer special exhibition and meet the target of three special exhibitions per year, especially since not only was the collection magnificent but also under the negotiated terms, the transfer would be free. The economic crisis, however, had prompted the Ministry of Finance to strictly enforce various regulations in an attempt to minimize the state’s deficit. One of these regulations required getting a formal approval for special exhibitions by all state-owned enterprises. In this respect, Prater had to forward the Ministry of Finance a memo on the financial viability of the event. On January 27, 2009, the Director of the Prater called for a meeting to evaluate the viability of the exhibition. 

The following information was available:

a) The special exhibition division consisted of a team of six individuals (e.g., managers, employees), whose annual compensation was worth €300,000.

b) Insurance and transportation of the David Gallery collection to the Prater Museum would be €200,000.

c) Advertising for the special exhibition: €100,000.

d) The exhibition catalogue would produce €150,000 of net surplus, that is, revenues minus corresponding expenses (e.g., design, printing, selling).

e) The decoration of the rooms that would host the exhibition, with capacity for 100 people per shift, would amount €50,000.

f) The exhibition would be open during 100 operating days and it would comprise 5 daily shifts. During the exhibition period, the display of the David Gallery Collection would require the Prater Museum to outsource a number of services. According to past experience, three security guards would be needed per 10,000 tickets sold (one each 3.333 tickets); the cost for one security guard would be €20,000. Ticketing would require one individual per 5,000 tickets sold; for this volume, the cost of the service would be €5,000. Finally, cleaning would demand 1 individual per 1,000 tickets sold, and the cost of each cleaner would be €2,000. The sales price for a ticket to the exhibition was expected to be €20.

Prepare a memo to Ministry of Finance justifying the viability of the special exhibition. The ministry guidelines require the report to include breakeven analysis in terms of ticket sales.

Answer rating: 100% (QA)

Your Name Your Position Date Memo To Ministry of Finance From Your Name Director of Prater Museum Subject Viability of the Special Exhibition I am writing to provide a comprehensive analysis of the fi... View the full answer