Based on your calculations in Question 6, which services or programs are operating successfully? What appears to be the determining factor in whether the service or program is profitable?
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
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 | Total Cost | Driver Capacity | Activity Rate |
| Occupancy – Indirect | $ 25,745 | 8,000 | $3.22 |
| Employee cots | 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 ATTACHMENT )
Questions
7. Based on your calculations in Question 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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