May you please answer the three questions.

University Day Care Center Susan Brooks, Director of the University Daycare Center, was reviewing the year-to-date Budget Performance Report from the Finance Department of the university. As she tried to analyze the components of each report, she realized that something needed to be done about the Center's financial status. The variance analysis for the Daycare Center showed a shortfall of over $89,000 (Exhibit 1). BACKGROUND University Daycare Center (UDC) was affiliated with a large urban university and maintained a facility located two miles from the main campus. It had passed state inspection in April, and had opened in July, just in time for the beginning of the fiscal year. The building in which the UDC was located had formerly been an elementary school. The Center occupied one corridor, with four large classrooms on each side. Two other corridor ls in the same building were unoccupied and had not been renovated. At the the end of the hallway was the Director's office and a small reception area where parents arrived with their children, usually by eight o'clock in the morning. The rooms had been carpeted and all of their doors had been removed to decrease the possibility of injuries. Additionally, the walls had been remodeled so that glass panels occupied the upper half of each wall on the corridor side. This made it possible for Teachers and Aides to observe children directly from the hallway. Each room was supplied with furniture, supplies and toys appropriate to different age groups of children. The infant room, for example, had cribs and bassinets and was stocked with various sizes of disposable diapers. The facility was cleaned and maintained, respectively, by the housekeeping and maintenance departments of the university. In December of the previous year, the university's Department of Human Resources had surveyed 300 of the 1250 university employees, including professors, administrative personnel, laboratory workers, and office assistants, to determine if they would utilize a daycare center. The survey included questions about fees, hours of operation and coverage for emergencies. The response was overwhelmingly in favor of providing such a service. The Human Resources Director, therefore, had drafted a proposal for the following year's budget and received approval for a oneyear $160,000 subsidy for the operation of a daycare center. Funds for the remodeling and furnishing of the Center were to be obtained from the Capital Improvement fund and the building was to be rented at a cost of $60,000 a year, with a one year renewable lease. The Human Resources department began promoting the Center Two months prior to its opening. Flyers were posted throughout the university and were placed in the mailboxes of virtually every permanent employee. A Human Resources representative attended orientation sessions for new employees and answered questions regarding the Center's services. The promotion approach emphasized the presence of the Center as an employee benefit, despite the fact that employees would pay for most of the operating expenses in the form of tuition fees. No fees were printed on the promotional literature, and all tuition discussions between potential enrollees and the UDC Director were to be held confidential. The proposal stated that the Center intended to provide daycare at reasonable rates (based on parental income) for any permanent university employee. A sliding fee scale would guarantee access for employees of all income levels. The Human Resources department hoped that the UDC would become a permanent service and envisioned that its implementation and operation would become a model for other university-affiliated daycare centers. Additionally, its presence could be an attractive incentive for employees to stay with the university or to choose employment there in the first place. FXHIRIT1 ITNIVERSITV DAV CARE. CFNTER FEES AND ENROLLEES After considerable market research and consideration of various fee structures, a sliding fee scale had been developed. It incorporated not only income measures, but also intensity of care. Thus, the tuition charged for infants was generally higher, since they required closer supervision (Exhibit 2). The UDC was licensed to have seven spaces for infants (two to eighteen months old) eighteen spaces for toddlers (eighteen months to two years old) and seventeen for preschoolers (two to five years old). In October, the enrolled population consisted of four infants, ten toddlers and nine preschoolers (Exhibit 3). Some of the children did not attend every day because their parents were part-time employees or had other child care arrangements for the remaining days of the week. All parents were required to submit documentation of immunizations, as well as a physician statement attesting to the health of each child. STAFFING The original budget allowed for staffing consisting of the director, three instructors, six teachers, five aides, and a half-time clerical worker. The Center was not fully staffed in some of these categories, but, since the staffing budget had assumed full enrollment, some positions were in fact overstaffed (Exhibit 4). In anticipation of high demand for the service, Ms. Brooks had hired all of the instructors and teachers one month before the Center's opening, both to accommodate an immediate full enrollment, as well as to comply with state requirements concerning child-to-teacher ratios. All instructors and teachers were certified in child care. Aides were trained and supervised by the instructors. BUDGETING PROBLEMS The University's $160,000 subsidy was to be used to finance the deficit at full enrollment; that is, at full enrollment, tuition fees were expected to contribute a total of $329,194 and expenses were expected to total $489,194. Since expenses had not fallen proportionately to revenue, the University was facing a subsidy of $249,326 (Exhibit 1). Ms. Brooks believed the Center should remain an integral part of the university community. However, she also recognized the importance of its financial viability. She knew that if she did not make some adjustments in expenses, revenues, or both, these decisions would be made by someone from the department of Human Resources. This would reflect poorly on her ability to manage the budget and might also make the Center a target for elimination if budget cuts became necessary. As she reviewed the n set of reports generated by the Finance Department, a number of items remained unclear as to what impact they would have on the continuing operation of the center. For example, adjustments made for the actual enrollment showed a variance of almost $65,000 for staff positions alone (Exhibit 4). Supplies expenses, by contrast, included many start-up items. Some of these were relatively long-lasting objects, such as toys and linens. Others, including disposable diapers and snack foods, were consumables. Many of the invoices for various classroom items had not yet been received. Additionally, charges for various services provided by the University, such as maintenance and laundry, were only generated every two to three months. Since this was the Center's first year of operation, however, the clerk had been instructed to carefully record the nature and the amount of each purchase, so that a better estimate could be submitted for the following year's budge 't. As a result, Ms. Brooks believed that the expenses shown in Exhibit 1 accurately reflected the results of the Center's activities. As of November, the UDC had increased its enrollment to over 50% of capacity in each category. Still, total revenues from all contributions were far below what had been projected (Exhibit 3). Ms. Brooks knew that part of this was due to the empty slots as well as the partial attendance by some children; however, even if adjustments were made for full enrollment by the end of the year, there would still be a revenue shortfall of approximately $67,000, assuming that average tuition in each category remained unchanged (Exhibit 5). It was clear that revenue could probably be increased if enrollment were limited to those in the highest-paying scales. One of the goals of the UDC, however, was to provide access to all employees, and charging the maximum tuition for the remaining slots would effectively limit the service to high-income applicants. Also, since the Center was not at full capacity upon opening, Ms. Brooks had seen no reason to exclude part-time attendance by some children. She had assumed that the revenue provided by part-time enrollees would offset at least some of the losses from the empty slots. UNIVERSITY DAY CARE CENTER Exhibit 2. Sliding Fee Range Exhibit 3. Individual Tuition Contributions (Revenues) based on Present Enrollment UNIVERSITY DAY CARE CENTER Exhibit 4. Salary Variances Based on Actual Enrollment * Budgeted positions have been adjusted here to account for the current staffing needs of the Center. Amounts are budgeted to nearest half FTE (full-time equivalent) except Director. Exhibit 5. Annual Individual Tuition Contributions (Revenue) Based on Full Enrollment University Day Care Center Susan Brooks, Director of the University Daycare Center, was reviewing the year-to-date Budget Performance Report from the Finance Department of the university. As she tried to analyze the components of each report, she realized that something needed to be done about the Center's financial status. The variance analysis for the Daycare Center showed a shortfall of over $89,000 (Exhibit 1). BACKGROUND University Daycare Center (UDC) was affiliated with a large urban university and maintained a facility located two miles from the main campus. It had passed state inspection in April, and had opened in July, just in time for the beginning of the fiscal year. The building in which the UDC was located had formerly been an elementary school. The Center occupied one corridor, with four large classrooms on each side. Two other corridor ls in the same building were unoccupied and had not been renovated. At the the end of the hallway was the Director's office and a small reception area where parents arrived with their children, usually by eight o'clock in the morning. The rooms had been carpeted and all of their doors had been removed to decrease the possibility of injuries. Additionally, the walls had been remodeled so that glass panels occupied the upper half of each wall on the corridor side. This made it possible for Teachers and Aides to observe children directly from the hallway. Each room was supplied with furniture, supplies and toys appropriate to different age groups of children. The infant room, for example, had cribs and bassinets and was stocked with various sizes of disposable diapers. The facility was cleaned and maintained, respectively, by the housekeeping and maintenance departments of the university. In December of the previous year, the university's Department of Human Resources had surveyed 300 of the 1250 university employees, including professors, administrative personnel, laboratory workers, and office assistants, to determine if they would utilize a daycare center. The survey included questions about fees, hours of operation and coverage for emergencies. The response was overwhelmingly in favor of providing such a service. The Human Resources Director, therefore, had drafted a proposal for the following year's budget and received approval for a oneyear $160,000 subsidy for the operation of a daycare center. Funds for the remodeling and furnishing of the Center were to be obtained from the Capital Improvement fund and the building was to be rented at a cost of $60,000 a year, with a one year renewable lease. The Human Resources department began promoting the Center Two months prior to its opening. Flyers were posted throughout the university and were placed in the mailboxes of virtually every permanent employee. A Human Resources representative attended orientation sessions for new employees and answered questions regarding the Center's services. The promotion approach emphasized the presence of the Center as an employee benefit, despite the fact that employees would pay for most of the operating expenses in the form of tuition fees. No fees were printed on the promotional literature, and all tuition discussions between potential enrollees and the UDC Director were to be held confidential. The proposal stated that the Center intended to provide daycare at reasonable rates (based on parental income) for any permanent university employee. A sliding fee scale would guarantee access for employees of all income levels. The Human Resources department hoped that the UDC would become a permanent service and envisioned that its implementation and operation would become a model for other university-affiliated daycare centers. Additionally, its presence could be an attractive incentive for employees to stay with the university or to choose employment there in the first place. FXHIRIT1 ITNIVERSITV DAV CARE. CFNTER FEES AND ENROLLEES After considerable market research and consideration of various fee structures, a sliding fee scale had been developed. It incorporated not only income measures, but also intensity of care. Thus, the tuition charged for infants was generally higher, since they required closer supervision (Exhibit 2). The UDC was licensed to have seven spaces for infants (two to eighteen months old) eighteen spaces for toddlers (eighteen months to two years old) and seventeen for preschoolers (two to five years old). In October, the enrolled population consisted of four infants, ten toddlers and nine preschoolers (Exhibit 3). Some of the children did not attend every day because their parents were part-time employees or had other child care arrangements for the remaining days of the week. All parents were required to submit documentation of immunizations, as well as a physician statement attesting to the health of each child. STAFFING The original budget allowed for staffing consisting of the director, three instructors, six teachers, five aides, and a half-time clerical worker. The Center was not fully staffed in some of these categories, but, since the staffing budget had assumed full enrollment, some positions were in fact overstaffed (Exhibit 4). In anticipation of high demand for the service, Ms. Brooks had hired all of the instructors and teachers one month before the Center's opening, both to accommodate an immediate full enrollment, as well as to comply with state requirements concerning child-to-teacher ratios. All instructors and teachers were certified in child care. Aides were trained and supervised by the instructors. BUDGETING PROBLEMS The University's $160,000 subsidy was to be used to finance the deficit at full enrollment; that is, at full enrollment, tuition fees were expected to contribute a total of $329,194 and expenses were expected to total $489,194. Since expenses had not fallen proportionately to revenue, the University was facing a subsidy of $249,326 (Exhibit 1). Ms. Brooks believed the Center should remain an integral part of the university community. However, she also recognized the importance of its financial viability. She knew that if she did not make some adjustments in expenses, revenues, or both, these decisions would be made by someone from the department of Human Resources. This would reflect poorly on her ability to manage the budget and might also make the Center a target for elimination if budget cuts became necessary. As she reviewed the n set of reports generated by the Finance Department, a number of items remained unclear as to what impact they would have on the continuing operation of the center. For example, adjustments made for the actual enrollment showed a variance of almost $65,000 for staff positions alone (Exhibit 4). Supplies expenses, by contrast, included many start-up items. Some of these were relatively long-lasting objects, such as toys and linens. Others, including disposable diapers and snack foods, were consumables. Many of the invoices for various classroom items had not yet been received. Additionally, charges for various services provided by the University, such as maintenance and laundry, were only generated every two to three months. Since this was the Center's first year of operation, however, the clerk had been instructed to carefully record the nature and the amount of each purchase, so that a better estimate could be submitted for the following year's budge 't. As a result, Ms. Brooks believed that the expenses shown in Exhibit 1 accurately reflected the results of the Center's activities. As of November, the UDC had increased its enrollment to over 50% of capacity in each category. Still, total revenues from all contributions were far below what had been projected (Exhibit 3). Ms. Brooks knew that part of this was due to the empty slots as well as the partial attendance by some children; however, even if adjustments were made for full enrollment by the end of the year, there would still be a revenue shortfall of approximately $67,000, assuming that average tuition in each category remained unchanged (Exhibit 5). It was clear that revenue could probably be increased if enrollment were limited to those in the highest-paying scales. One of the goals of the UDC, however, was to provide access to all employees, and charging the maximum tuition for the remaining slots would effectively limit the service to high-income applicants. Also, since the Center was not at full capacity upon opening, Ms. Brooks had seen no reason to exclude part-time attendance by some children. She had assumed that the revenue provided by part-time enrollees would offset at least some of the losses from the empty slots. UNIVERSITY DAY CARE CENTER Exhibit 2. Sliding Fee Range Exhibit 3. Individual Tuition Contributions (Revenues) based on Present Enrollment UNIVERSITY DAY CARE CENTER Exhibit 4. Salary Variances Based on Actual Enrollment * Budgeted positions have been adjusted here to account for the current staffing needs of the Center. Amounts are budgeted to nearest half FTE (full-time equivalent) except Director. Exhibit 5. Annual Individual Tuition Contributions (Revenue) Based on Full Enrollment