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What would be the short-term and long-term recommendations for the Appaloosa County Day Care Center facility?

What would be the short-term and long-term recommendations for the Appaloosa County Day Care Center facility?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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What would be the short-term and long-term recommendations for the Appaloosa County Day Care Center facility? 

### Transcription for Educational Website --- **Food Costs** The center provides food for AC/DC patrons, but it does not charge a separate fee for lunches or snacks or meals. The cost of food is included as part of the tuition fee. In addition, the employees are entitled to one meal during their lunch hour or evening meal on-site if staff remains so their meals are also provided by the center. All children and classroom staff receive breakfast, lunch, and two snacks a day. **Occupancy Costs** Building Resource Costs: ACDC worked in conjunction with the local school district and the Head Start program prior to constructing the facility. The existing building was purposely built larger than the space required by the day care only. Consequently, when it came time to analyze costs, it was the board's opinion that the Head Start and school district programs should share in the cost of the loan and the building (i.e., interest expense and depreciation). Utilities: When AC/DC designed the facility, it considered the needs of the tenants and designed their rooms accordingly. The board did not have the foresight, however, to set up the tenants' rooms with their own gas, electric, and water meters. Therefore, all the utilities are measured through common meters, and AC/DC pays the bills for the entire facility. The only exception to this is the telephone expense, as each program contracts and pays for its own phone service. See Exhibit 2 for details. Maintenance, etc.: As specified in the lease agreement, AC/DC pays the entire building’s expenses related to maintenance, cleaning supplies, and sanitation. See Exhibit 2 for details. **Insurance Costs** ACDC has four different insurance coverages: property, general liability, officers’ bond, and workers’ compensation. The property insurance covers the entire building. The general liability insurance covers the children and staff in the AC/DC program and helps protect the center against accidents or claims against the staff. The tenants must carry their own liability insurance. The bond insurance of the officers covers the center for any inappropriate handling of financial matters by the board of directors. Finally, the workers’ compensation insurance covers the administration and AC/DC employees for work-related injuries. **Exhibit 2** - **Proportion for Building Lease** 1. **ACDC** follows this cost-sharing method: - The total area (5,850 sq. ft.) in the "ACDC" day care center is occupied by multiple programs. - The main distribution is as
Transcribed Image Text:### Transcription for Educational Website --- **Food Costs** The center provides food for AC/DC patrons, but it does not charge a separate fee for lunches or snacks or meals. The cost of food is included as part of the tuition fee. In addition, the employees are entitled to one meal during their lunch hour or evening meal on-site if staff remains so their meals are also provided by the center. All children and classroom staff receive breakfast, lunch, and two snacks a day. **Occupancy Costs** Building Resource Costs: ACDC worked in conjunction with the local school district and the Head Start program prior to constructing the facility. The existing building was purposely built larger than the space required by the day care only. Consequently, when it came time to analyze costs, it was the board's opinion that the Head Start and school district programs should share in the cost of the loan and the building (i.e., interest expense and depreciation). Utilities: When AC/DC designed the facility, it considered the needs of the tenants and designed their rooms accordingly. The board did not have the foresight, however, to set up the tenants' rooms with their own gas, electric, and water meters. Therefore, all the utilities are measured through common meters, and AC/DC pays the bills for the entire facility. The only exception to this is the telephone expense, as each program contracts and pays for its own phone service. See Exhibit 2 for details. Maintenance, etc.: As specified in the lease agreement, AC/DC pays the entire building’s expenses related to maintenance, cleaning supplies, and sanitation. See Exhibit 2 for details. **Insurance Costs** ACDC has four different insurance coverages: property, general liability, officers’ bond, and workers’ compensation. The property insurance covers the entire building. The general liability insurance covers the children and staff in the AC/DC program and helps protect the center against accidents or claims against the staff. The tenants must carry their own liability insurance. The bond insurance of the officers covers the center for any inappropriate handling of financial matters by the board of directors. Finally, the workers’ compensation insurance covers the administration and AC/DC employees for work-related injuries. **Exhibit 2** - **Proportion for Building Lease** 1. **ACDC** follows this cost-sharing method: - The total area (5,850 sq. ft.) in the "ACDC" day care center is occupied by multiple programs. - The main distribution is as
**ACCT640 - Group Project** **IMA EDUCATIONAL Case Journal** --- **Appaloosa County Day Care Center, Inc.** *Kristen Irwin* *Truman State University* *Debra Kerby* *Truman State University* *Sandra Weber* *Truman State University* --- **BACKGROUND** The Appaloosa County Day Care Center, Inc. (ACDC) began operations in a vacant warehouse retrofitted with bathrooms and kitchen facilities. ACDC’s mission is to provide quality, affordable childcare to the residents of the community and surrounding area. The service area is a rural, economically depressed county that continually ranks in the lowest 10 percent of per-capita income in the state. The organization’s seven-member board of directors is comprised of volunteer representatives from various agencies throughout the community—the school district, community college, hospital, Department of Human Services, etc. The board members bring a breadth of human services experience to the oversight of the day care, but most do not possess an accounting or financial background. While they were committed to the financial viability of the day care, they initially focused on the center’s mission—to provide affordable childcare to working-class families. As a result, the board set childcare rates to achieve their goal of affordability rather than assuring adequate revenues to provide high-quality services while reaching breakeven points. From its founding, the center faced another significant challenge. The center was the first of its kind in the community, so negative perceptions about using “institutionally” provided day care were prevalent. Local families preferred to use in-home childcare provided by friends or relatives. These perceptions and preferences, coupled with poor administrative practices, caused the center to struggle continually to meet its financial obligations. ACDC was almost forced to close its doors on more than one occasion. The financial performance of ACDC is not unusual, as many community-based day care facilities struggle to remain open. **DAY CARE INDUSTRY REVENUE AND COST PATTERNS** As an industry, day care facilities generally operate with very low profit margins. Typical for-profit day care profit margins are approximately 4 percent, with about 70 percent of a center’s total costs attributed to wages and other employee-related costs (Herbst 1995, 172, 176). The state’s Department of Human Services’ licensing regulations drive a significant level of employee-related costs. These regulations mandate a strict staff-to-child ratio that all licensed facilities must follow. For example, infant care
Transcribed Image Text:**ACCT640 - Group Project** **IMA EDUCATIONAL Case Journal** --- **Appaloosa County Day Care Center, Inc.** *Kristen Irwin* *Truman State University* *Debra Kerby* *Truman State University* *Sandra Weber* *Truman State University* --- **BACKGROUND** The Appaloosa County Day Care Center, Inc. (ACDC) began operations in a vacant warehouse retrofitted with bathrooms and kitchen facilities. ACDC’s mission is to provide quality, affordable childcare to the residents of the community and surrounding area. The service area is a rural, economically depressed county that continually ranks in the lowest 10 percent of per-capita income in the state. The organization’s seven-member board of directors is comprised of volunteer representatives from various agencies throughout the community—the school district, community college, hospital, Department of Human Services, etc. The board members bring a breadth of human services experience to the oversight of the day care, but most do not possess an accounting or financial background. While they were committed to the financial viability of the day care, they initially focused on the center’s mission—to provide affordable childcare to working-class families. As a result, the board set childcare rates to achieve their goal of affordability rather than assuring adequate revenues to provide high-quality services while reaching breakeven points. From its founding, the center faced another significant challenge. The center was the first of its kind in the community, so negative perceptions about using “institutionally” provided day care were prevalent. Local families preferred to use in-home childcare provided by friends or relatives. These perceptions and preferences, coupled with poor administrative practices, caused the center to struggle continually to meet its financial obligations. ACDC was almost forced to close its doors on more than one occasion. The financial performance of ACDC is not unusual, as many community-based day care facilities struggle to remain open. **DAY CARE INDUSTRY REVENUE AND COST PATTERNS** As an industry, day care facilities generally operate with very low profit margins. Typical for-profit day care profit margins are approximately 4 percent, with about 70 percent of a center’s total costs attributed to wages and other employee-related costs (Herbst 1995, 172, 176). The state’s Department of Human Services’ licensing regulations drive a significant level of employee-related costs. These regulations mandate a strict staff-to-child ratio that all licensed facilities must follow. For example, infant care
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