COMPANY BACKGROUND You have recently been promoted to your dream job as the manager of the Little Panda Daycare and Children Centre (LP). LP was founded by Andrea Green in 2016. As a social worker, Andrea understands the importance to engage children and stimulate their interest in learning. As the first three years of their lives are critical to their development, the mission of LP has always been to deliver a high-quality learning experience where children are encouraged to be curious and have fun. Andrea has made this mission the center of any decision she makes. In 2017, LP invested $32,000 to renovate the storage room and turn it into a proper classroom. This allowed them to start a drop-in classes program for pre-school (1 to 4 years old) where kids can come in for a 1-hour class with a certified instructor. Classes offered include music, dancing and acrobatic. Andrea put together this program as she realized that many kids in the neighborhood had a parent who couldn't work and therefore, the family couldn't afford the full- day daycare program. Andrea was concerned that many of the kids were not getting the right amount of stimulation at home. As a result, Andrea decided to set the price equal to the cost of the class. This helps to make the class affordable for as many families as possible.Information about the full day daycare program: . The parents must pay $2,500 per month per child to attend the daycare. . Children register in the daycare program at the beginning of the year. They must register for a full year which is September 1st to July 30th. The daycare is open an average of 220 days per year once statutory holidays and Christmas vacations are considered. The day care has a capacity for 50 kids and LP has been operating at capacity since its inception. LP also maintains a waitlist for parents waiting for a spot at the daycare. The daycare hours are 8 am to 5pm (9 hours without breaks for the educators). The ratio of educators to kids is 1 educator for 5 kids. Kids are provided 1 lunch and 2 snacks each day. . The daycare educators are paid $35 per hour. Information about the drop-in classes: Each class is 1 hour long and a total of 6 classes are offered each day between the hours of 10am and 4pm. Classes are offered 220 days per year. Each class is sold individually, and parents must register their kids through the online registration system of the daycare for the specific class they wish to attend. Each class has 1 educator and a maximum of 10 kids per class. . The classes are provided in the studio (formerly the storage room) which is located at the back of the daycare. The reception area is therefore shared between the daycare and the drop-in classes and the daycare receptionist also takes attendance of the kids when they arrive for their class. The educator is paid $50 per class no matter how many kids register for the class. The classes are on average 80% full.Additional Information: Description of Cost Cost Food & Beverage: Cost of the lunch and snacks provided to $14 per child per daycare children each day. day Administration & Reception: The cost of the administration & $104,000 per year reception staff. Rent: The total rent for the space shared between the daycare $64,800 per year and drop-in program. Utilities: Heating, water and electricity. $32,000 per year Booking System: Expense related to the maintenance of the online registration system used by the daycare and drop-in $7,500 per year classes. REQUIREMENTS ALL FIGURES ARE TO BE PRESENTED TO THE NEAREST TWO DECIMAL PLACES Part 1: (10 marks) Discuss what costs are direct labor, direct materials, and overhead costs. Are they fixed costs or variable costs? Part 2: (20 marks) a) Help Andrea determine: The cost of the drop-in program for a year. . The cost of the daycare program for a year. Andrea currently uses a simple cost allocation where the direct costs are traced and all overhead costs are assigned on the basis of the labour hours of educators b) Calculate the monthly cost per child for the daycare program and the cost per class per child for the drop-in program. Based on your calculations, is LP making profits for the daycare program?Part 3: (30 marks) a) Andrea asked you to review the costs determined above using an ABC costing model. Using ABC costing, determine: The cost of the drop-in program for a year. . The cost of the daycare program for a year. In addition to the information provided earlier, Andrea provides you with an additional breakdown of the shared costs to help you in your analysis: TOTAL UNITS COST DRIVER UNITS USED UNITS USED COST OF COST FOR DAYCARE FOR DROP-IN DRIVER ADMINISTRATION Number of Students in the 250 50 200 & RECEPTION Program RENT Square Footage 3.200 2,875 325 Hours of UTILITIES 3,300 1,980 1,320 Operations Number of BOOKING SYSTEM 10,610 50 10,560 Registration b) Calculate the monthly cost per child for the daycare program and the cost per class per child for the drop-in program. Based on your calculations, how does the profitability of the daycare program change? Should Andrea charge a lower or higher price for the drop-in program?Part 4: (20 marks) a) Explain why there is a difference in the cost under ABC and the current costing system. b) Since the costing in ABC costing is considered to be "more precise", why is this method not permitted when preparing financial statements for reporting purposes under IFRS. c) When it comes to Rent expense, do you think that square footage is a better allocation base than Direct Labour hours? Why? Part 5: Strategic Analysis (20 marks) Based on the information obtained in part 2 & 3, what would you recommend to Andrea in terms of pricing the classes for the drop-in center? (Remember that Andrea currently priced the drop- in classes to equal the cost of the class as determined under the current system.) How is this decision affected by the demand of the two programs