Review the enclosed Arclight County Daycare Center Case Actions and complete the questions below. Upload your answer file(s) here on or before the due date given. Your assignment on the above will be graded using the rubric.
Questions:
1. Identify the services or programs to be included in the cost and profitability analysis. 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. 3. Identify the broad activity categories and create cost pools by assigning the costs from Table 2 to the pools. 4. Identify the cost drivers that have a causal relationship to the activity cost pools created in Question 3. 5. Calculate the activity or cost-driver rates for each cost pool. Note: You should develop rates that will allocate costs to ACDC programs and/or tenants only. You should not allocate any costs back to general administration. 6. Using the services or programs identified in Question 1, determine service or program revenues, assign the costs to the service or programs, and calculate service or program profitability. A spreadsheet may be helpful with this task.
7. Based upon your calculations in Question 6, which services or programs are operating successfully? What appears to be the determining factor in whether the service or program is profitable? 8. Discuss at least three alternatives for improving the overall profitability of the daycare facility.
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ArclightCounty DayCareCenter, Inc. FOOD COSTS Exhibit 2 The center provides food for ACDC patrons, but it does Excerpt from Building Lease not charge a separate fee to recover the cost of snacks or Utilities: When ACDC designed the facility, it considered the needs of the etenants and designed their rooms accordingly. OTHER OPERATING COSTS The board did not have the foresight, however, to set up the Acompletelisting of the organization's operating expenses tenants'roomswith theirowngas, electric, and watermeters. is shown in Table 2. The costs not previously discussed meters, and ACDC pays the bills for the entire facility. The include administrative or program costs such as accounting, \begin{tabular}{l|l} only exception to this is the telephone expense, as each & advertising, continuingeducation, and supplies. Thesecosts are attributable solely to ACDC. \end{tabular} program contracts and pays for its own phone service. See Exhibit 2 for details. THE ACCOUNTANT'S CHALLENGE Tables 1-3 provide revenue and expense information for the first year of operations at the new facility. Tables 4-6 provide additional information useful for the cost analysis and decision making. ACTIVITY-BASED COSTING-A QUICK REVIEW Activity-based costing (ABC) is used frequently in manufacturing settings because it typically improves product cost information. ABC replaces arbitrary cost allocations by first assigning costs to activities and then to goods based on how much each good uses the activities. The concepts of ABC can also be applied to service-based organizations where tangible products do not exist. In a service organization, costs are assigned to the various activities performed, cost drivers that measure the activities performed 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 thecausal relationship between the activity, the costscreated by the activity, and the assignment of these costs to services. IDENTIFICATION OF COST DRIVERS There are many activities present in a day care setting that create or drive costs. An example is the preparing and serving of food. It is relatively easy to assign many of the costs, such as food and direct labor, to this activity. It is more difficult, however, to assign costs to many of the most significant activities that occur regularly in a day care. These activities (like reading a book, playing a game, or teaching a skill) are key components of the service being provided-childcarebut 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 being incurred, population or a population subset becomes the driver identified for many of the activity cost pools. Population may be measured interms of enrollment, class size, or number of staff. See Table 6. QUESTIONS 1. Identify the services or programs to be included in the cost and profitability analysis. 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. 3. Identify the broad activity categories and create cost pools by assigning the costs from Table 2 to the pools. 4. Identifythe cost drivers that have acausal relationship to the activity cost pools created in Question 3 . 5. Calculate the activity or cost-driver rates for each cost pool. Note: You should develop rates that will allocate coststo ACDCprograms and/ortenantsonly. Youshould not allocate any costs back to general administration. 6. Using the services or programs identified in Question 1, determine service or program revenues, assign the costs tothe serviceorprograms, and calculateserviceor programprofitability.Aspreadsheet maybehelpfulwith this task. 7. Based upon your calculations in Question 6, which services or programs are operating successfully? What appears to be the determining factor in whether the service or program is profitable? 8. Discuss at least three alternatives for improving the overall profitability of the daycare facility
