1. Identify the services or programs to be included in the cost and profitability analysis. 2. Examine the costs listed in Table 2. a. Identify the direct costs associated with each service or program. b. Which costs would be organization-sustaining costs? Provide an argument for or against assigning these costs to services or programs. 3. Identify the broad activity categories and create cost pools by assigning the costs from Table 2 to the pools. 4. Identify the cost drivers that have a causal relationship to the activity cost pools created in Question 3. 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. 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. 7. Based upon 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.

To help in your analysis, details of space utilization are as follows:

Infant Care	850 sqft
Toddler Care	1375 sqft
Pre-K Care	1375 sqft
School District	1750 sqft
Head Start	2650 sqft
Total Usage	8000 sqft

Exhibit 1: Department of Human Services Excerpt from Childcare Regulations

Staff ratio. The staff-to-child ratio shall be as follows:

Age of Children	Minimum Ratio of Staff to Children
Two weeks to two years	One to every 4 children
Two years	One to every 6 children
Three years	One to every 8 children
Four years	One to every 12 children
Five years to ten years	One to every 15 children
Ten years and over	One to every 20 children

Exhibit 2:

Excerpt from Building Lease

IT IS AGREED this 1st day of July, 20xx, by and between Appaloosa County Day Care Center, Inc., hereinafter referred to as Landlord; and Head Start, hereinafter referred to as Tenants:

That the Landlord hereby leases to the Tenants and the Tenants hereby lease from the Landlord the following premises situated in Appaloosa County, USA, to wit:

Three rooms and an office (2650 sq. ft.) in the ACDC day care center as specified in the building plans, in consideration of the mutual promises of the parties herein and upon the terms, provisions, and conditions following:

1. LEASE PERIOD. The term of this lease shall be for a period of twelve months starting July 1, 20xx.

2. RENT. Tenants shall pay rental for the period as follows; $530.00 on the 1st day of July and $530.00 on the 1st day of each month thereafter during the lease period; said rental thus at all times to be paid in advance for the month. The Landlord will pay all utilities, maintenance, and custodial services on the building. The Landlord reserves all remaining rooms for their use or lease.

1. Identify the services or programs to be included in the cost and profitability analysis.

Table 1: Payroll Detail
	Wages	Taxes	Total Payroll
Administrative	$ 13,750	$ 1,190	$ 14,940
Kitchen	9,000	780	9,780
Infant Care	19,250	1,665	20,915
Toddler Care	38,500	3,330	41,830
Pre-K Care	29,000	2,510	31,510
Totals	$109,500	$ 9,475	$ 118,975

2. Examine the costs listed in Table 2:

Table 2 - Operating Expenses
Accounting & Legal	$ 900
Advertising	150
Bank charges	35
Continuing education	450
Depreciation	11,800
Food expense	5,500
Ins. - Bldg/property	860
Ins. - Officer bond	120
Ins. - Gen liability	2,190
Ins. - Workers Comp	400
Interest Expense	13,085
Payroll - wages *	109,500
Payroll - taxes *	9,475
Repairs and Maintenance	5,950
Sanitation Service	2,435
Supplies - Cleaning	365
Supplies - Program/art	365 3,675
Supplies - Office	2,900
Telephone	1,060
Utilities	4,000
Water/Sewer	1,100
Total Expenses	$ 175,950

Table 3: Revenues
Tuition
Infant Care	$ 28,530
Toddler Care	68,710
Pre-K Care	62,650
Rent
School District	4,200
Head Start	6,360
Total	$ 170,450