appaloosa county day care center, inc
TRANSCRIPT
Case Study: Appaloosa County Day Care Center, Inc.
Florida Memorial University
Bus 501 Accounting for Management
Fall 2011
Dr. Rosalie C. Hallbauer
Aldon Hemmans
Mary Saddler
Gerald Turner
• Identify the services or program to be included in the cost and profitability analysis.
The Department of Human Services licensing regulations of a staff to child ratio that all
licensed facilities must follow. If a center pays just the minimum wage at least $1.95 per hour
would need to be charged for each infant just cover the cost of the employee. In addition,
other costs that impact day care center operations include occupancy costs, food, insurance,
supplies and programming expenses. Occupancy and food costs are influenced by the
Department of Human Services. The facility must follow specific nutritional guidelines in
preparing meals and snacks. The board concluded that constructing a new facility would be
the best option for providing quality childcare in an attractive and safe environment. The
ACDC board spearheaded the construction of an 8,000 square foot building that would be
owned by ACDC and funded in part by a federal grant and a loan from the local USDA Rural
Development Office. The cost of food is included as part of the tuition fee. Also 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 costs of the loan and building. ACDC 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. ACDC has four different insurance costs: property,
general liability, officer’s bond and worker’s compensation. The costs not previously
discussed include administrative or program costs such as accounting, advertising, continuing
education and supplies. These costs are attributable solely to ACDC. Activity based costing is
used frequently in manufacturing settings because it typically improves product cost
information. In a service organization, costs are assigned to the various activities performed,
cost drivers that measure the activities performed are identified, cost driver rates are
calculated for each activity, and the resulting rates are used to le 2assign activity costs to the
types of services provided.
• Examine the costs listed in Table 2
• Identify the direct costs associated with each service or program.
The financial accounting system provides the foundation for program costing. However, this
system probably precludes capturing all funding and cost at the program level. At the time
program costs are prepared, certain cost accounting procedures must be applied to the amounts
produced by the financial accounting system. These procedures are applied on a systematic basis
and are documented for audit trail purposes.
COSTS TO BE REPORTED
LABOR COST Pay-W $ 109,500 Pay-T $ 9,475
FOOD COST $ 5,500
OCCUPANCY COSTS Dep. $ 11,800 Int. E $13,085 Water $ 1,100
OCCUPANCY COSTS Util. $ 4,000 Mt. $ 5,950 San $ 2,435
OCCUPANCY COSTS Clean $ 365
INSURANCE COSTS B/P $ 860 Bond $ 120 G/L $2,190
INSURANCE COSTS W/C $ 400
OTHER OPERATING COST Acct $ 900 Adv. $ 150 CED $ 450
OTHER OPERATING COST Sup $ 2,900 Admin $ 35 Art $3,675
b) Which costs would be organization-sustaining costs? Accounting & Legal fees.
Provide and argument for or against assigning these costs to services or programs. Fees are
necessary Audits play an important role in ensuring the sound financial management of a
business. A review of appropriate financial records by an independent public accountant will
determine whether you have spent money according to your budget and have met any
requirements mandated by various funding sources as well as state and federal regulations. An
audit also provides you with an accurate financial statement and recommendations to improve
your financial management. Many funding sources require a financial statement or audit as a
condition of future grants or contracts. You should, therefore, budget for an audit or look for an
accountant who will do it for little or no charge.
3. Identify the broad activity categories and create cost pools by assigning the cost pools by
assigning the costs from table 2 to the pools.
Advertising- 150, Food expense- 5,500, Ins.- Workers comp 400, Payroll- wages- 109,500,
Telephone- 1,060, Utilities- 4,000
4. Identify the cost drivers that have a causal relationship to the activity cost pools created in
question 3.
Response:
Cost driver/Activity #1-Food preparation and serving
Activity Costs- food, cooking/eating utensils, energy costs (heating/cooling/food preservation/storage), Incidentals (napkins, cleaning supplies, water).
Cost driver/Activity #2- Building operation
Activity Costs- sanitation services/supplies, utilities, repairs & maintenance
Cost driver/Activity #3-Employee related expenses
Activity Costs- Payroll, paid breakfast/lunch/dinner
Cost driver/Activity #4- Child care and Interactive learning tools (program/art)
Activity Costs- Infant care, toddler care, pre-k care, food, program/art
Cost driver/Activity #5- Insurance & legal
Activity Costs- Property insurance, Officer bond insurance, General liability insurance, Workers comp insurance, accounting and legal fees, bank charges
5. Calculate the activity or cost-driver rates 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.
Response:
Cost driver/Activity #1-Food preparation and serving- food ($5500) + cooking/eating utensils (unspecified) + Incidentals (napkins, paper towels, etc) (unspecified)=$5500 + Unspecified
Cost driver/Activity #2- Building operation- sanitation services/supplies ($2800) + utilities ($4000) + repairs & maintenance ($5950) = $12750
Cost driver/Activity #3-Employee related expenses- Payroll ($118,975) + paid breakfast/lunch/dinner (unspecified) = $118,975 + unspecified variables
Cost driver/Activity #4- Child care and Interactive learning tools (program/ art)- Infant care ($20,915) + toddler care ($41,830) + pre-k care ($31,510) + food (unspecified) + program/art ($3675) = $97,930 + unspecified
Cost driver/Activity #5- Insurance & legal- Property insurance ($860) + Officer bond insurance ($120) + General liability insurance ($2190) + Workers comp insurance ($400) + accounting and legal fees ($900) + bank charges ($35) = $4505
6. Using the services or program 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.
178450 Revenue – 151001 Expense175886
Total Expense
YEAR
TOTAL
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec PROJECTED
213 427 641 854 1,068 1,282 1,495 1,709 1,923 2,136 2,350
Tuition
Infant Care 2,378 2,378 2,378 2,378 2,378 2,378 2,378 2,378 2,378 2,378 2,378 2,378
Toddler Care 5,726 5,726 5,726 5,726 5,726 5,726 5,726 5,726 5,726 5,726 5,726 5,726
Pre-K care 5,221 5,221 5,221 5,221 5,221 5,221 5,221 5,221 5,221 5,221 5,221 5,221
Rent 0
School District 350 350 350 350 350 350 350 350 350 350 350 350
Head Start 530 530 530 530 530 530 530 530 530 530 530 530
Square Foot 0
ACDC 300 300 300 300 300 300 300 300 300 300 300 300
School District 146 146 146 146 146 146 146 146 146 146 146 146
Head Start 221 221 221 221 221 221 221 221 221 221 221 221
Cash from other
sources
TOTAL CASH IN 14,871 14,871 14,871 14,871 14,871 14,871 14,871 14,871 14,871 14,871 14,871 14,871
Cash OUT
Payroll 9,125 9,125 9,125 9,125 9,125 9,125 9,125 9,125 9,125 9,125 9,125 9,125
Payroll taxes 790 790 790 790 790 790 790 790 790 790 790 790
TOTAL STAFFING 9,915 9,915 9,915 9,915 9,915 9,915 9,915 9,915 9,915 9,915 9,915 9,915
Food 458 458 458 458 458 458 458 458 458 458 458 458
Transportation
Supplies 578 578 578 578 578 578 578 578 578 578 578 578 Utilities 508 508 508 508 508 508 508 508 508 508 508 508
Marketing 13 13 13 13 13 13 13 13 13 13 13 13
Ins: Bus./Lia.//Real
Est/Worker's Comp 298 298 298 298 298 298 298 298 298 298 298 298
Audit/Legal 75 75 75 75 75 75 75 75 75 75 75 75
Repairs/Maintenance 699 699 699 699 699 699 699 699 699 699 699 699
CEDU 38 38 38 38 38 38 38 38 38 38 38 38
Bank Charges 3 3 3 3 3 3 3 3 3 3 3 3
TOTAL OPERATING
DISBURSEMENTS 12,584 12,583 12,583 12,583 12,583 12,583 12,583 12,583 12,583 12,583 12,583 12,583
Depreciation 983 983 983 983 983 983 983 983 983 983 983 983
Mortgage/Lease
payments 1,090 1,090 1,090 1,090 1,090 1,090 1,090 1,090 1,090 1,090 1,090 1,090
Loan payments
Payments on past
due obligations
Interest Expense
TOTAL CASH OUT 14,658 14,657 14,657 14,657 14,657 14,657 14,657 14,657 14,657 14,657 14,657 14,657
NET CASH FOR THE
PERIOD 213 214 214 214 214 214 214 214 214 214 214 214
ENDING CASH 213 427 641 854 1,068 1,282 1,495 1,709 1,923 2,136 2,350 2,564
7. Based upon your calculation 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?
• Federally- funded Head start program
• Pre-School program
Since the early 80's daycare has become an almost standard social agency in local communities
either as part of the school system, the local church or as part of the duties provided for by the
Welfare services. Daycare specialists undergo training and must be licensed and qualified in the
positions and roles they are given. There are for-profit and non-profit daycare agencies spread
across America and the quality of childcare experience is dictated by budget, legislation and
access to grants and funds. For this purpose, I have decided to visit a local daycare center being
run by the Catholic Church. They are funded by private donors, the church and church members.
The children in the system are either kids of members of the church or children who come from
very poor and marginalized families whose parents have sought the help of the church for their
care while they work in the day. There are 2 sessions - one in the morning, one in the afternoon.
For special cases, as when a child needs to be left for a whole day, children are registered as 'full-
day' wards. Learning materials as well as food is provided. The daycare center is located in one
of the buildings within the church property.It will depend on the size of your program, the age
ranges you care for and other services you provide. As a rule, infant care is the most expensive.
This is not known as a business to get rich in. Many programs report not seeing a profit for the
first 6 months to a year. Even then average profit margins are only 10-15%. In establishing your
rates, it is best to learn what the going rates are for similar programs in your town. To apply
ABC, it is necessary to identify specific activities that are to be costed. These are referred to as
cost centers. Cost centers are a particular way in which the resources used to produce an
organization’s activities and the costs of those resources are grouped. Cost centers must be
defined in such a way that:
The sum of the cost centers is comprehensive hereby including all of the resources used to
produce each and every activity of the Program and together, the entire Program, and they must
be mutually exclusive thereby avoiding double counting any of the resources used to produce the
Program. It is important to note that the cost methodology is not comprehensive. It does not
include all of the costs incurred by Appaloosa County Day Care Center in implementing the
program. Rather, it focuses exclusively on the costs. Hence, some costs of the program for
instance, the costs incurred by community and families participating in the program are not
included.
8. Discuss at least there alternatives for improving the overall profitability of the daycare facility.
• An alternative for improving the overall profitability of the daycare facility is to stop
paying for employee meals. This would reduce the food expense of the company by up to
20% (the text stated that for every 4 infants, 1 adult/employee must be present).
• Another alternative for improving the overall profitability of the daycare facility is to
raise the lease rate charged to the head start program and the school district for rented
space/rooms. The text shows us that tenants typically pay for their own utilities,
maintenance, and sanitation, however ACDC is providing these services to these tenants.
As it stands, ACDC is undercharging the tenants and are not even covering their own
expenses. This change could raise profit margins exponentially.
• A final alternative for improving the overall profitability of the daycare facility is to
invest in adding meters to the rooms of the tenants to measure energy consumption. The
initial loss implied by adding meters will be recovered and translated into profit because
ACDC can now charge energy rates based on the actual energy consumption of each
room as opposed to measuring the levels through common meters. This in conjunction
with sharing the costs of the loan and building (i.e., interest expense and depreciation)
will produce more revenue.
• To cut operating expenses, you may be able to find volunteer aides through local
community youth employment programs. Volunteers can offer special activities that
centers could not otherwise afford to give children and their families. They can serve as
teachers, teacher aides, secretaries and bookkeepers. Many volunteers are skilled in story
telling, dance, art and music. Parents may have skills in nursing, accounting or law and
may want to serve as volunteers as a way to reduce tuition fees.
• Colleges and universities (student teachers, students in art, music, athletics).
• Fraternities and/or sororities.
• Girl Scouts and/or Boy Scouts.
• Junior League.
• Foster grandparent programs.
• Senior citizen groups.
• Armed forces bases.
• Training programs such as early childhood development classes.