Hello and thank you!
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.
Tables 1-3 provide revenue and expense information for the first year of operations at the new facility. Tables 4-6 Table 4 Hourly Childcare Rates provide additional information useful for the cost analysis and decision making Infant care $ 2.00 Toddler care 1.75 Table 2 Pre-K care 1.75 Operating Expenses Accounting & legal $ 900 Advertising 150 Table 5 Bank charges 35 Square Footage Continuing education 450 Depreciation 11,80 ACDC 3,600 Food expense 5,500 School district 1,750 Ins. - Blog/property 860 Head Start 2,650 Ins.-Officerbond 120 8,000 2,190 TOTAL Ins. -Gen. liability Ins. - Workers comp 400 Interest expense 13,085 Payroll - wages* 109,500 ACTIVITY-BASED COSTING-A QUICK REVIEW Payroll-taxes* 9, 47 5,950 Activity-based costing (ABC) is used frequently in Repairs & maintenance Sanitation Service 2,435 manufacturing settings because it typically improves product Supplies - Cleaning 365 cost information. ABC replaces arbitrary cost allocations by Supplies - Program/art 3,675 first assigning costs to activities and then to goods based Supplies - Office 2,900 on how much each good uses the activities. The concepts Telephone 1,060 of ABC can also be applied to service-based organizations Utilities 4,000 where tangible products do not exist. In a service Water/sewer 1,100 organization, costs are assigned to the various activities TOTAL EXPENSES $ 175,950 performed, cost drivers that measure the activities performed *See detailin Table 1 are identified, cost driver rates are calculated for each activity, and the resulting rates are used to assign activity costs to the types of services provided. This process reflects Table 3 the causal relationship between the activity, the costs created Revenues by the activity, and the assignment of these costs to services. Tuition IDENTIFICATION OF COST DRIVERS Infant care $ 28,530 There are many activities present in a day care setting that Toddler care 68,710 create or drive costs. An example is the preparing and serving Pre-K care 62,650 of food. It is relatively easy to assign many of the costs, such Rent as food and direct labor, to this activity. It is more difficult, School district 4,200 however, to assign costs to many of the most significant Head Start 6,360 activities that occur regularly in a day care. These activities TOTAL $ 170,450 (like reading a book, playing a game, or teaching a skill) are key components of the service being provided-childcare- but they are difficult to measure. Therefore, identifying each of the individual activities that drive cost and then assigning cost to the daycare programs based on those activities may be cost prohibitive. For that reason, ACDC places activities into broad category classifications. When considering drivers that would be cost effective yet causally related to the costs
