NORTHVILLE DAYCARE BUDGET EXERCISE, PART 2 It is now September of 2021, and the daycare center has been successfully operating for 8 months. The demand for daycare has been as strong as anticipated, with enrollment growing and significant unmet demand (expected to end Dec. 2021: 254 kids). While most of the parameters used to construct the 2021 budget were correct, there are a few adjustments which must be made to personnel scheduling and other costs for 2022. Budget Adjustments 1) Tiny Tots, Inc. has started providing paid vacation/personal days to their employees. Daycare workers get 2 weeks of paid time, based on 40 hours per week. 2) In 2021, the budget did not include coverage for a lunch hour for each employee. As a result, employees had to work during lunch; that violates union rules. This year, the staff will be provided a one-hour paid lunch (they still get paid for 8 hours/day), and the director is considering using part-time work study college students to cover the lunch hours. The college students have to work at 15 hours per week and will get paid at the going rate for daycare workers but no benefits. Lunch hours are from 11 to 2, and employees can be assigned to any lunch hour. (The objective is to schedule lunch hours for the staff to minimize staffing requirements.) 3) Wages remain constant, but personnel costs rise to: Social Security: 7.75% Unemployment & Disability: 7.5% Health insurance: $140/month 4) In addition, the center has had to add liability insurance of $750 per month and fire and theft insurance of $750 per month that will cover any services provided by the center 5) All other costs not specifically addressed are expected to increase by an inflation rate of 5 percent for 2022. Additional Services: Besides the additional staffing requirements, Tiny Tots is thinking of adding additional services to the daycare center: 1) Expanded hours for the day care from 8:00 am to 6:00 pm. The children are expected to come in two shifts (but utilize the service for the same total number of hours); -- 8:00 am: 70 percent of children -- 10:00 am: 30 percent of children 2) Adding care for infants during these expanded hours. (They are expected to arrive in the same percent for each time as toddlers.) The staffing ratio can be no higher than 4 infants to 1 staff person. The staff would receive the same pay and benefits as those taking care of toddlers. Food and equipment costs are expected to be the same per child. The city will subsidize equipment for the first 100 infants. The director expects to start in January 2022 with 100 infants. Presently, the daycare center is housed in an old school that is not being used by the city. While the city agreed to provide free space and utilities the first year, the mayor has said this will not be possible for 2022. The city is willing to lease the full facility and provide utilities for $3,250 per month. The school has 8,000 square feet, and state regulations require the following square footage for children; 15 square feet/toddler 10 square feet/infant ASSIGNMENT: Modify your spreadsheet from Part 1 to incorporate these changes. Assume that the child/staff ratio for toddlers will be raised to the legal maximum of 9/1. Carry out the following tasks and provide a copy of your tables and a one-page memo summarizing your results and addressing the following questions: 1) Develop the 2022 budget by month with these changes. Determine the total expenditures and expenditures per child. The director would like the budget broken into the two "mission centers". You should assign indirect costs to each mission center using the most appropriate allocation factor. (Justify your choice.) Enrollment in the center could continue to grow by 5 percent per month as long as space is available. Assume that the monthly rate is $400/month for childcare. 2) Assume that the center continues to receive subsidies for union members, but the rate has increased to $7.50/day/child for day care. How much would monthly fees to parents have to be to break even? Assume that: a) the same fees for childcare are charged per child (whether infant or toddler). b) different fees can be charged for each mission center to cover the costs of this center. c) the city adopts a sliding scale fee based on income. Assume that city employees can be grouped into three income classes: Low income: Middle income: High income: average $35,000/year average $55,000/year average $75,000/year And that city workers are evenly divided between these income classes. Assume that fees for toddlers in a particular income class will be the same as infants in that class. Develop a sliding scale fee that will cover the center's deficits for 2022. Justify your choice of fee. (Hint: Consider creating a set of fees that represent the same share of income for each income class). NORTHVILLE DAYCARE BUDGET EXERCISE, PART 2 It is now September of 2021, and the daycare center has been successfully operating for 8 months. The demand for daycare has been as strong as anticipated, with enrollment growing and significant unmet demand (expected to end Dec. 2021: 254 kids). While most of the parameters used to construct the 2021 budget were correct, there are a few adjustments which must be made to personnel scheduling and other costs for 2022. Budget Adjustments 1) Tiny Tots, Inc. has started providing paid vacation/personal days to their employees. Daycare workers get 2 weeks of paid time, based on 40 hours per week. 2) In 2021, the budget did not include coverage for a lunch hour for each employee. As a result, employees had to work during lunch; that violates union rules. This year, the staff will be provided a one-hour paid lunch (they still get paid for 8 hours/day), and the director is considering using part-time work study college students to cover the lunch hours. The college students have to work at 15 hours per week and will get paid at the going rate for daycare workers but no benefits. Lunch hours are from 11 to 2, and employees can be assigned to any lunch hour. (The objective is to schedule lunch hours for the staff to minimize staffing requirements.) 3) Wages remain constant, but personnel costs rise to: Social Security: 7.75% Unemployment & Disability: 7.5% Health insurance: $140/month 4) In addition, the center has had to add liability insurance of $750 per month and fire and theft insurance of $750 per month that will cover any services provided by the center 5) All other costs not specifically addressed are expected to increase by an inflation rate of 5 percent for 2022. Additional Services: Besides the additional staffing requirements, Tiny Tots is thinking of adding additional services to the daycare center: 1) Expanded hours for the day care from 8:00 am to 6:00 pm. The children are expected to come in two shifts (but utilize the service for the same total number of hours); -- 8:00 am: 70 percent of children -- 10:00 am: 30 percent of children 2) Adding care for infants during these expanded hours. (They are expected to arrive in the same percent for each time as toddlers.) The staffing ratio can be no higher than 4 infants to 1 staff person. The staff would receive the same pay and benefits as those taking care of toddlers. Food and equipment costs are expected to be the same per child. The city will subsidize equipment for the first 100 infants. The director expects to start in January 2022 with 100 infants. Presently, the daycare center is housed in an old school that is not being used by the city. While the city agreed to provide free space and utilities the first year, the mayor has said this will not be possible for 2022. The city is willing to lease the full facility and provide utilities for $3,250 per month. The school has 8,000 square feet, and state regulations require the following square footage for children; 15 square feet/toddler 10 square feet/infant ASSIGNMENT: Modify your spreadsheet from Part 1 to incorporate these changes. Assume that the child/staff ratio for toddlers will be raised to the legal maximum of 9/1. Carry out the following tasks and provide a copy of your tables and a one-page memo summarizing your results and addressing the following questions: 1) Develop the 2022 budget by month with these changes. Determine the total expenditures and expenditures per child. The director would like the budget broken into the two "mission centers". You should assign indirect costs to each mission center using the most appropriate allocation factor. (Justify your choice.) Enrollment in the center could continue to grow by 5 percent per month as long as space is available. Assume that the monthly rate is $400/month for childcare. 2) Assume that the center continues to receive subsidies for union members, but the rate has increased to $7.50/day/child for day care. How much would monthly fees to parents have to be to break even? Assume that: a) the same fees for childcare are charged per child (whether infant or toddler). b) different fees can be charged for each mission center to cover the costs of this center. c) the city adopts a sliding scale fee based on income. Assume that city employees can be grouped into three income classes: Low income: Middle income: High income: average $35,000/year average $55,000/year average $75,000/year And that city workers are evenly divided between these income classes. Assume that fees for toddlers in a particular income class will be the same as infants in that class. Develop a sliding scale fee that will cover the center's deficits for 2022. Justify your choice of fee. (Hint: Consider creating a set of fees that represent the same share of income for each income class)