Case 5-3 Harbor City Children's Center our deficit is increasing, and we obviously have to reverse this trend if we're going to become solvent. But, for that, we have to know where our costs are, in particular the cost of each of the services we offer. In March 1998, Liz Conaway, executive director of Harbor City Children's Center, expressed concern to Ted Roberts, her new accountant, about the cen- ter's cost accounting system. The extensive funding Harbor City had received during its early years was decreasing, and Ms. Conaway wanted to prepare the center to be self-sufficient, yet she lacked critical cost information Background Harbor City Children's Center was established in 1983 by a consortium of community groups. Situated in Torrance, a residential neighborhood near Los Angeles, California, the center was intended to provide counseling and re- lated services to residents of Torrance and neighboring communities. Fifteen years after its inception, the center maintained strong ties with the commu- nity groups responsible for its development and subsequent acceptance in Torrance. Funding for Harbor City was initially provided by the federal government as part of the Department of Health and Human Services' attempt to provide social services to inner-city poverty areas in the United States. When operating funds were depleted in 1996, the city of Torrance supplemented Harbor City's income with a small three-year grant. Because Ms. Conaway re- alized that government support could not continue indefinitely, she intended to make the center self-sufficient as soon as possible. Harbor City's income etatement is contained in Exhibit 1