Assignment #1: Budgeting for Movies (Worth 20pts.)

Movies are expensive to produce and market. According to IMDb,the most expensive film on record is Pirates of the Caribbean:At World’s End, with a total budget of $336 million. Thismovie and its budget were widely publicized prior to the premiereof the film, and moviegoers were eager to see the results of thismassive movie budget.

Like other large projects, movies have budgets. Potentialfinanciers look at the budget, the script, and other factors todecide whether to invest in the movie. Several categories of costswill be in a movie’s budget, including:

• Story rights
• Screenplay
• Producers and directors
• Cast
• Production costs
• Special effects
• Music

The typical file budget you read about in the press includesonly expenses. The movie budgets released to the general public donot include estimated box office receipts or other revenue streams.In addition, movie budgets do not usually include marketing costs,which can be another 50% or more of the film’s publicizedbudget.

Producers and directors will frequently release budget figuresfor upcoming movies, and these budget figures will be reported inseveral news outlets. However, Los Angeles Times writerPatrick Goldstein states that “everyone” lies about their moviebudgets. For example it was reported initially that TheAvengers, a Marvel Studios file, had an overall budget of $170million. Another source indicated that the budget for TheAvengers was $260 million. Which one of these figures was the“correct” budget figure? No one outside of the management of themovie really knows.

Questions: (Each question is worth 5 pts.)

1. Budgeting for a movie can be challenging. Frequently, budgetitems change as the movie production progresses. If budgeting for amovie is difficult, why prepare a movie budget at all?

2. What reasons can a movie director have for misrepresenting theoverall budget for a particular movie? Is misrepresenting a moviebudget unethical? Do you think misrepresenting a movie’s totalbudgeted expenditures to the public harms anyone? Why or whynot?

3. “If a Hollywood movie’s box office number exceeds itsproduction budget, then that movie makes a profit.” From readingthe information given in the case, do you agree with thisstatement? Why or why not?

4. Sometimes actors, directors, and producers are asked to take alower salary up front and instead receive a percentage of thefilm’s overall gross profits (from box office receipts, DVD sales,and similar revenue streams). Why might the film company proposethis arrangement? Why might the actors, directors, and producersaccept this arrangement? Would this type of arrangement (lowersalary up front with a percentage of the film’s gross profitslater) make the budgeting process easier or more challenging?Why?

Assignment #2: Identify Ethical Standards Violated(Worth 10 pts.)

Requirement: Each ethical situation isworth 2 pts.

For each of the situations listed, identify and state theprimary (competence, confidentiality, integrity, or credibility)and secondary standard (1 – 3 or 4 from the list beneath eachprimary standard) from the IMA Statement of EthicalProfessional Practice that is violated. Refer to Exhibit P-6on page 10 of your text for the complete standard.

1. When out with friends, Louise complains loudly about thebudgeting process at her company. She feels the budgeting processis overly precise. She illustrates her point with specific numbersfrom the budget.

2. Allan is caught on video as he brags about illegallydownloading software that he feels is overpriced. The video isuploaded to YouTube.

3. Jake, an accountant for Snow Films Company, builds some slackinto the budget for the Human Resources (HR) Department so that thetargets are easier to achieve. Jake is dating the manager of the HRDepartment.

4. Pearl is controller for Cloudy Fork Gardens. When she preparesthe budgets for the upcoming year for upper management, sherealizes that her department has higher costs than any otherdepartment. She aggregates the numbers with some other departmentsso that it is not obvious that her department is overspending.

5. Alfredo knows that the laws concerning credit card and debitcard fees have changed in the past year but does not know what thechanges are specifically. He does not investigate before preparingthe cash budget.