7. Based upon your calcualtions in Questions 6, which services or programs are operating successfully? What appears to be the determining factor in whether the service or program is profitable? 8. Discuss at least three alternatives for improving the overall profitability of the daycare facility.
CASE QUESTIONS AND ANSWERS
1. Identify the services and/or programs to be included in the
cost and profitability analysis.
Infant childcare
Toddler childcare
Pre-K childcare
Rent - School district
Rent - Head Start
2. Examine the costs listed in Table 2.
a. Identify the direct costs associated with each service
or program.
Labor costs are the only direct costs associated with
the programs. Food costs would be direct costs to
the kitchen area but indirect to the end services.
b. Which costs would be organization- or facility-sustaining
costs? Provide an argument for or against assigning
these costs to services or programs.
The costs that would be considered to be organizationsustaining costs include
insurance, and interest expense on the mortgage debt.
Both ACDC and the tenants use the facility and,
thus, should participate in the costs associated with
acquiring the space.
3. Identify the broad activity categories and create cost pools
by assigning the costs from Table 2 to the pools.
1. Occupancy costs – Indirect
Depreciation $ 11,800
Ins. - Bldg/property 860
Interest expense 13,085
$ 25,745
2. Employee Support costs
Continuing education $ 450
Ins. – Workers comp 400
850
3. General & Administrative costs
Accounting & legal $ 900
Advertising 150
Bank charges 35
Ins. - Officer bond 120
Ins. - Gen. liability 2,190
Payroll - Admin. 14,940
Supplies - Office 2,900
Telephone 1,060
22,295
4. Program Support costs
Food expense $ 5,500
Supplies - Program 3,675
Payroll - Kitchen 9,780
18,955
5. Occupancy costs – Building Usage
Repairs & maintenance $ 5,950
Sanitation 2,435
Supplies - Cleaning 365
Utilities 4,000
Water/sewer 1,100
13,850
6. Wage Expenses – Direct
Infant $ 20,915
Toddler 41,830
Pre-K 31,510
94,255
$175,950
4. Identify the cost drivers that have a causal relationship to
the activity cost pools created in Question 3.
Tables 5 and 6 contain the key cost driver information.
Cost Pool Cost Driver
Occupancy costs–Indirect Square footage
Employee support costs Number of ACDC program employees
General & administrative costs Total number of children enrolled
Program support costs Total daily population at ACDC*
Occupancy costs–Building usage Total daily population in building*
Wages expenses–Direct Number of employees assigned to rooms
5. Calculate the cost-driver rates or consumption ratios
for each cost pool. Note: You should develop rates that
will allocate costs to ACDC programs and/or tenants
only. You should not allocate any costs back to General
Administration.
Cost Pool TotalCost Capacity Rate Activity rate
Occupancy – Indirect $ 25,745 8,000 $ 3.22
Employee costs 850 12 70.83
General & admin costs 22,295 78 285.83
Program costs 18,955 59 321.27
Occupancy—Building usage 13,850 123 112.60
Wages – Direct 94,255
Total Cost $175,950
6. Using the services or programs identified in Question 1,
determine service or program revenues, assign the costs to
the service or programs, and calculate service or program
profitability. A spreadsheet may be helpful with this task.
See spreadsheet on the following page for calculations
( SEE ATTACHMENT )
Questions ( THAT NEED ANSWERS)
7. Based upon your calcualtions in Questions 6, which services or programs are operating successfully? What appears to be the determining factor in whether the service or program is profitable?
8. Discuss at least three alternatives for improving the overall profitability of the daycare facility.
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