Dingani and Pumla Feza are business partners. They both worked for a railroad company for 30 years. At age 57, Dingani and age 52, Pumla retired and moved to the small town of Mfumbeni, which has a population of approximately 3,500 residents.When the Fezas moved to the town, they decided to start a child care business in their home called Nannas House.

Nannas House is licensed by the local municipality. The municipality charges an annual fee of K225 to maintain the license. Insurance is required at a cost of K3,840 annually. The facility is licensed to care for a maximum of six children. The Fezas charge a fee of K800 per month for each child. The monthly fee is based on a full day of care, from 8:00 a.m. to 4:00 p.m. If additional time is required beyond 4:00 p.m., parents must pay an additional charge of K15 per hour for each child. The Fezas provide two meals and a snack for the children. The cost of the meals and snack is K3.20 per child per day. There are six children currently enrolled.

The facility is very nice. It is an 820 square foot addition to their home that was built in 1964. The Fezas purchased the home and completed the renovations for K79,500 and they believe the addition has a useful life of 25 years. The facility has a large open space for play, reading, and other activities. There is a section for sleeping which contains small cots.The facility is equipped with a small kitchen, two bathrooms and a small laundry area.

The daycare increased the Fezas utility cost by K50 each month. During the first week of operations, the washer and dryer stopped working. Both appliances were old and had been used by The Fezas for many years. The old appliances cost a total of K440. While a laundry room was not initially a necessity, it became increasingly important for laundering the soiled clothes of the children, blankets, and sheets. A company nearby, Red Oak Laundry and Dry Cleaning, can launder clothing for the Fezas, including pick-up and delivery, for K52 per month. Alternatively, the Fezas can take clothes to the laundromat once a week, which is three miles away (one way). The applicable mileage rate is K0.56/mile. They can launder the clothes themselves at a cost of K8 per week. The self-service alternative does not include detergent and fabric softener. The The Fezas would need to purchase these items in order to use the laundromat. Purchasing laundry supplies in bulk from MegaMart would cost K35 everyquarter.

The final alternative is for the Fezas to purchase a washer and dryer. The cost of the appliancesis:

• washer K420
• dryer K380.

The additional accessories for both appliances, needed for installation,cost K43.72. The store will deliver the appliances at a total cost of K35. The cost of installing theappliances is free. Both appliances are expected to last 8 years. According to the manufacturer the washerwill increase energy costs by K120 per year. The dryer will increase energy costs by K145 per year.

The Fezas need some assistance in decision making and evaluation. They have contacted you, their accountant, to provide some advice.

REQUIRED:

Respond to the following Case-based questions to help the Fezas make theirdecisions.

(If necessary, the Fezas will use straight line depreciation. For monthly calculations, use 4.33 weeksper month.)

1. Consider the different types of costs discussed in this course. List the costs discussed in the case in a table and provide one specific example of each.

Example

	Amount(K)	Cost classification	Description	Why you say it is that type of cost classification
1.	225	Fixed cost	Annual license fee	The license fee does not change regardless of the business activities

[34 marks]

2. Based on the information provided, what information is relevant to the decision to purchase the laundry appliances? What information is irrelevant to the decision to purchase the appliances? Why? [10 marks]

3. What could it cost the the Fezas to launder clothes? Show your detailed calculations for each. [10 marks]

4.The Fezas has made a significant investment in this business. How long will it take for the the Fezas to recoup their investment? Is the time required to recoup the investment a good measure of the success of the company? If not, how would you measure the success of the company? Explain. [10 marks]

5. As their accountant, prepare a letter to the Fezas advising them on their laundry needs. What is your recommendation and why? [10 marks]

6. The Fezas have a waiting list for their daycare. They can hire an employee for K9 per hour for 40 hours each week. With the additional employee, the Fezas can accept three additional children. Should the Fezas hire the additional employee? Show your detailed calculations. [10 marks]

7. The Fezas home can accommodate a maximum of nine children. They can move the daycare from their home to rented space in town, which can accommodate up to 14 children. The space will cost K650 per month and the utilities will cost K125 per month. Additionally, insurance will now cost the Fezas K5,000 per year. Per municipality regulations, each adult can supervise no more than three children. As their accountant, prepare a letter to the Fezas advising them on their space options. Should they continue to operate the facility at home or should they rent space in town? How many children should they accept? How many employees will they need to hire? Show your detailed calculations for each scenario (operate the facility at home or rent space in town).

[16 marks]

[100 marks x 0.5= 50 marks]