Discuss at least three alternatives for improving the overall profitability of the daycare facility. How would you implement those three alternatives and the potential results? Truman State UniversityBACKGROUNDThe Appaloosa County Day Care Center, Inc. (ACDC)began operations in a vacant warehouse retrofitted withbathrooms and kitchen facilities. ACDC's mission is toprovide quality, affordable childcare to the residents of thecommunity and surrounding area. The service area is arural, economically depressed county that continually ranksin the lowest 10 percent of per-capita income in the state.The organization's seven-member board of directors iscomprised of volunteer representatives from various agenciesthroughout the community-the school district, communitycollege, hospital, Department of Human Services, etc.The board members bring a breadth of human servicesexperience to the oversight of the day care, but most do notpossess an accounting or financial background. While theywere committed to the financial viability of the day care,they initially focused on the center's mission-to provideaffordable childcare to working-class families. As a result, theboard set childcare rates to achieve their goal of affordabilityrather than assuring adequate revenues to provide high-quality services while reaching breakeven points.Truman State UniversityFrom s founding, the center faced anothersignificant challenge. The center was the first of its kindin the community, so negative perceptions about using"institutionally" provided day care were prevalent. Localfamilies preferred to use in-home childcare provided byfriends or relatives. These perceptions and preferences,coupled with poor administrative practices, caused the centerto struggle continually to meet i financial obligations.Exhibit 1Department of Human ServicesExcerpt from Childcare RegulationsIMA EDUCATIONAL CASE JOURNALStaff ratio. The staff-to-child ratio shall be as follows:Age of ChildrenTwo weeks to two yearsTwo yearsThree yearsFour yearsFive years to ten yearsTen years and overMinimum Ratio of Staff to ChildrenOne to every 4 childrenOne to every 6 childrenOne to every 8 childrenOne to every 12 childrenOne to every 15 childrenOne to every 20 childrenSource Department of Human Services, 2008. Child Care Center and PreschoolsLicensing Standards and Procedures Comm. 204, Augas.In addition. labor, other costs that impact day carecenter operations include occupancy costs, food, insurance,supplies, and programming expenses. Occupancy andfood costs are also highly influenced by the Departmentof Human Services, as a facility must provide a minimumamount of space per child (based on age) and follow specificnutritional guidelines in preparing meals and snacks.ACDC PLANNING AND OPERATIONSAbout five years into operations, a new board of directorswas appointed and strategic objectives were developed. Asits first strategic actions, the board replaced the Center'sadministration and developed specific operating proceduresto keep the facility afloat financially. In order to eliminatethe community's negative perceptions of institutionalizedchildcare, the board decided to move the center to a higher-quality facility. After further study, the board concludedthat constructing a new facility would be the best optionfor providing quality childcare in an attractive and safeenvironment. In addition, the new building would housethe community's federally-funded Head Start program andthe local school district's handicapped pre-school program,as these programs were housed in inadequate facilities.Thus, the ACDC board spearheaded the construction of an8,000-square-foot building that would be owned by ACDC,Inc., and funded in part by a federal grant and a loan fromthe local USDA Rural Development Office.During the planning and construction of the new facilitybut prior to its opening, the ACDC board had to resolve anumber of issues. First and foremost, the board did not wantIMA EDUCATIONAL CASE JOURNALFOOD COSTSThe center provides food for ACDC patrons, but it doesnot charge a separate fee to recover the cost of snacks ormeals. The cost of food is included as part of the tuition fee.In addition, the employees are required to remain on-siteduring the lunch hour order to maintain the staff-to-childratio, so their meals are also provided by the center. Allchildren and classroom staff receive breakfast, lunch, andtwo snacks a day.OCCUPANCY COSTSBuilding: Because ACDC worked in conjunction with thelocal school district and the Head Start program prior toconstructing the new facility, the building was purposelybuilt larger than the space required by the day care only.Consequently, when it came time to analyze costs, it wasthe board's opinion that the Head Start and school districtprograms should share in the costs of the loan and building(i.e., interest expense and depreciation).Utilities: When ACDC designed the facility, it considered theneeds of the tenants and designed their rooms accordingly.The board did not have the foresight, however, to set up thetenants' rooms with their own gas, electric, and water meters.Therefore, all of the utilities are measured through commonmeters, and ACDC pays the bills for the entire facility. Theonly exception to this is the telephone expense, as eachprogram contracts and pays for its own phone service. SeeExhibit 2 for details.Maintenance, etc.: As specified in the lease agreement,ACDC pays the entire building's expenses related tomaintenance, cleaning supplies, and sanitation. See Exhibit2 for details.INSURANCE COSTSACDC has four different insurance costs: property, generalliability, officer's bond, and worker's compensation. Theproperty insurance covers the entire building. The generalliability insurance covers the children and staff in the ACDCprogram and helps protect the center against accidents orclaims against the staff. The tenants must carry their ownliability insurance. The bond insurance on the officers coversthe center for any inappropriate handling of financial mattersby the board of directors. Finally, the worker's compensationinsurance covers the administration and ACDC employeesfor work-related injuries.ACDC was almost forced to close its doors on more thanone occasion. The financial performance of ACDC is notunusual, s many community-based day care facilitiesstruggle to remain open.Truman State UniversityDAY CARE INDUSTRY REVENUE AND COST PATTERNSAs an industry, day care facilities generally operate withvery low profit margins. Typical for-profit day care profitmargins are approximately 4 percent, with about 70 percentof a center's total costs attributed to wages and otheremployee-related costs (Helbumn 1995, 172, 176). The state'sDepartment of Human Services' licensing regulations drive asignificant level of employee-related costs. These regulationsmandate a strict staff-to-child ratio that all licensed facilitiesmust follow. For example, infant care (ages two weeks to twoyears) regulations require at least one staff member for everymom recamsfour children (see excerpt from regulations in Exhibit 1).Thus, if a center pays just the minimum wage (federal wagecurrently $7.25 per hour, $7.80 w/taxes), at least $1.95 perhour would need to be charged for each infant just to coverthe cost of the employee. Additionally, one must considerhow revenues are affected when there are fewer than fourinfants per employee scheduled in the nursery. When theratio drops, income per hour drops; however, the full hourlywage to the employee remains the same and an immediateloss ccurs. See Ex ibit 1 the complete Department ofHuman Service staff ratio requirements.VOL. 3, NO. 4, ART. 3, DECEMBER 2010to raise the childcare rates, for fear that doing so would deterpeople from patronizing the facility. On the other hand, theboard was not at all positive that the existing rates would coverthe costs associated with the new building. In addition, ACDCwas becoming a landlord, and this created additional concernsfor the board. ACDC agreed to lease floor space or rooms tothe Head Start program and school district, perform facilitymaintenance, and provide utilities. ACDC did not provide anyfurniture or fixtures. The board's main question: How muchrent should ACDC charge the tenants? The ACDC boardresearched the lease rates charged to the area's commercialretail facilities and determined that $20 per 100 square feetwas the going rate and decided to charge their tenants atthis rate. Because the board members were not experiencedin making financial and capital expenditure decisions, theydid not fully consider that this rate was for floor space only;commercial leaseholders typically pay all of their own utilities,sanitation, and maintenance fees. Thus, the board hadinadvertently created the potential for a future financial crisisfor ACDC. Selected post-construction revenues, costs, andoperational information for ACDC follow.ACDC COST STRUCTURELABOR COSTSACDC maintains a staff of employees assigned to each age-level classroom that is in compliance with DHS guidelines.The staff schedule is rotated throughout the week sothat the staff-to-child ratio is always maintained while noone employee works more than 40 hours per week. Theemployer's labor costs include the wages, FICA (7.65%), andthe SUTA rate (1%). The facility does not offer any otheremployee benefits. (See Table 1)Table 1Payroll DetailAdministrativeKitchenInfant careToddler carePre-K careTotalsWages$ 13,7509,00019,25038,50029,000$109,500VOL. 3, NO. 4, ART. 3, DECEMBER 2010Exhibit 2Excerpt from Building LeaseTaxes$1,1907801,665TotalPayroll$ 14,9409,78020,9153,33041,830251031,510$9,475 $118,975IT IS AGREED this 1st day of July, 20xx, by and betweenAppaloosa County Day Care Center, Inc., hereinafter referred toas Landlord; and Head Start, hereinafter referred to as Tenants:That the Landlord hereby leases to the Tenants and the Tenants hereby leasefrom the Landlord the following premises situated in Appaloosa County, USAThree rooms and an office (2650 sq. ft.) in the "ACDC" day care center asspecified in the building plans, in consideration of the mutual promises of theparties here in and upon the terms, provisions, and conditions following:1.LEASE PERIOD. The term of this lease shall be for a period of twelvemonths starting July 1, 20xx2. RENT. Tenants shall pay rental for the period as follows: $530.00 on the 1stday of July and $530.00 on the 1st day of each month thereafter during thelease pericd; said rental thus at all times to be paid in advance for the month.The Landlord will pay all utilities, maintenance, and custodial services on thebuilding. The Landlord reserves all remaining rooms for their use or lease.OTHER OPERATING COSTSA complete listing of the organization's operating expensesis shown in Table 2. The costs not previously discussedinclude administrative or program costs such as accounting.advertising, continuing education, and supplies. These costsare attributable solely to ACDC.THE ACCOUNTANT'S CHALLENGERather than addressing the revenue and cost issues thatarose during the facility construction, the board took a "waitand see" position and opted to review both the childcarerates and rental rates after the new facility had begunoperations. After the first year of building occupancy, theACDC board wanted to evaluate the costs and revenuesassociated with each of the day care's and tenants' programs.AYou are the center's accountant (and the only individual onthe board with significant financial knowledge), so the otherboard members have asked you to explain why the center isrunning at a loss. You indicate that you believe that both thechildcare rates and rental rates were set without establishingcorrelation to the costs that they were intended to cover.You also state that you want to take the time to completea thorough cost and profitability analysis of the day care'schildcare programs and tenant agreements. In order to do so,you decide to implement an activity-based costing system toallocate costs to the various programs and tenants. Appaloosa County Day Care Center, Inc.Kristen IrwinTruman State UniversityBACKGROUNDThe Appaloosa County Day Care Center, Inc. (ACDC)began operations in a vacant warehouse retrofitted withbathrooms and kitchen facilities. ACDC's mission is toprovide quality, affordable childcare to the residents of thecommunity and surrounding area. The service area is arural, economically depressed county that continually ranksin the lowest 10 percent of per-capita income in the state.The organization's seven-member board of directors iscomprised of volunteer representatives from various agenciesthroughout the community-the school district, communitycollege, hospital, Department of Human Services, etc.The board members bring a breadth of human servicesexperience to the oversight of the day care,possess an accounting or financial background. While theywere committed to the financial viability of the day care,they initially focused on the center's mission-to provideaffordable childcare to working-class families. As a result, theboard set childcare rates to achieve their goal of affordabilityrather than assuring adequate revenues to provide high-quality services while reaching breakeven points.most do notFrom its founding, the center faced anothersignificant challenge. The center was the first of its kindin the community, so negative perceptions about using"institutionally" provided day care were prevalent. LocalDebra KerbyTruman State Universityfamilies preferred to use in-home childcare provided byfriends or relatives. These perceptions and preferences,coupled with poor administrative practices, caused the centerto struggle continually to meet its financial obligations.Exhibit 1Department of Human ServicesExcerpt from Childcare RegulationsIMA EDUCATIONAL CASE JOURNALFour yearsFive years to ten yearsTen years and overStaff ratio. The staff-to-child ratio shall be as follows:Age of ChildrenTwo weeks to two years.Two yearsThree yearsMinimum Ratio of Staff to ChildrenOne to every 4 children.One to every 8 childrenOne to every 8 childrenOne to every 12 childrenOne to every 15 childrenOne to every 20 childrenSouce Department of Human Services 2008 Child Care Cenon and PreschoolsLicensing Standards and Procedures. Comm 34, AugustIn addition to labor, other costs that impact day carecenter operations include occupancy costs, food, insurance,supplies, and programming expenses. Occupancy andfood costs are also highly influenced by the Departmentof Human Services, as a facility must provide a minimumamount of space per child (based on age) and follow specificnutritional guidelines in preparing meals and snacks.ACDC PLANNING AND OPERATIONSAbout five years into operations, a new board of directorswas appointed and strategic objectives were developed. Asits first strategic actions, the board replaced the Center'sadministration and developed specific operating proceduresto keep the facility afloat financially. In order to eliminatethe community's negative perceptions of institutionalized.childcare, the board decided to move the center to a higher-quality facility. After further study, the board concluded.that construct a new facility would be the best optionfor providing quality childcare in an attractive and safeenvironment. In addition, the new building would housethe community's federally-funded Head Start program andthe local school district's handicapped pre-school program,as these programs were housed in inadequate facilities.Thus, the ACDC board spearheaded the construction of an8,000-square-foot building that would be owned by ACDC,Inc., and funded in part by a federal grant and a loan fromthe local USDA Rural Development Office.During the planning and construction of the new facilitybut prior to its opening, the ACDC board had to resolve anumber of issues. First and foremost, the board did not wantIMA EDUCATIONAL CASE JOURNALFOOD COSTSThe center provides food for ACDC patrons, but it doesnot charge a separate fee to recover the cost of snacks ormeals. The cost of food is included as part of the tuition fee.In addition, the employees are required to remain on-siteduring the lunch hour in order to maintain the staff-to-childratio, so their meals are also provided I y the center. Allchildren and classroom staff receive breakfast, lunch, andtwo snacks a day.OCCUPANCY COSTSBuilding: Because ACDC worked in conjunction with thelocal school district and the Head Start program prior toconstructing the new facility, the building was purposelybuilt larger than the space required by the day care only.Consequently, when it came time to analyze costs, it wasthe board's opinion that the Head Start and school districtprograms should share in the costs of the loan and building(i.e., interest expense and depreciation).Utilities: When ACDC designed the facility, it considered theneeds of the tenants and designed their rooms accordingly.The board did not have the foresight, however, to set up thetenants' rooms with their own gas, electric, and water meters.Therefore, all of the utilities are measured through commonmeters, and ACDC pays the bills for the entire facility. Theonly exception this is the telephone expense, as eachprogram contracts and pays for its own phone service. SeeExhibit 2 for details,Maintenance, etc.: As specified in the lease agreement,ACDC pays the entire building's expenses related tomaintenance, cleaning supplies, and sanitation. See Exhibit2 for details.INSURANCE COSTSACDC has four different insurance costs: property, generalliability, officer's bond, and worker's compensation. Theproperty insurance covers the entire building. The generalliability insurance covers the children and staff in the ACDCprogram and helps protect the center against accidents orclaims against the staff. The tenants must carry their ownliability insurance. The bond insurance on the officers coversthe center for any inappropriate handling of financial mattersby the board of directors. Finally, the worker's compensationinsurance covers the administration and ACDC employeesfor work-related injuries.ACDC was almost forced to close its doors on more thanone occasion. The financial performance of ACDC is notunusual, as many community-based day care facilitiesstruggle to remain open.DAY CARE INDUSTRY REVENUE AND COST PATTERNSAs an industry, day care facilities generally operate withvery low profit margins. Typical for-profit day care profitmargins are approximately 4 percent, with about 70 percentof a center's total costs attributed to wages and otheremployee-related costs (Helburn 1995, 172, 176). The state'sDepartment of Human Services' licensing regulations drive asignificant level of employee-related costs. These regulationsmandate a strict staff-to-child ratio that all licensed facilitiesmust follow. For example, infant care (ages two weeks to twoyears) regulations require at least one staff member for everyfour children (see excerpt from regulations in Exhibit 1).Thus, if a center pays just the minimum wage (federal wagecurrently $7.25 per hour, $7.80 w/taxes), at least $1.95 perhour would need to be charged for each infant just to coverthe cost of the employee. Additionally, one must considerhow revenues are affected when there are fewer than fourinfants per employee scheduled in the nursery. When theratio drops, income per hour drops; however, the full hourlywage to the employee remains the same and an immediateloss occurs. See Exhibit 1 for the complete Department ofHuman Service staff ratio requirements.VOL. 3, NO. 4, ART. 3, DECEMBER 2010Sandra WeberTruman State Universityto raise the childcare rates, for fear that doing so would deterpeople from patronizing the facility. On the other hand, theboard was not at all positive that the existing rates would coverthe costs associated with the new building. In addition, ACDCwas becoming a landlord, and this created additional concernsfor the board. ACDC agreed to lease floor space or rooms tothe Head Start program and school district, perform facilitymaintenance, and provide utilities. ACDC did not provide anyfurniture or fixtures. The board's main question: How muchrent should ACDC charge the tenants? The ACDC boardresearched the lease rates charged to the area's commercialretail facilities and determined that $20 per 100 square feetwas the going rate and decided to charge their tenants atthis rate. Because the board members were not experiencedin making financial and capital expenditure decisions, theydid not fully consider that this rate was for floor space only;commercial leaseholders typically pay all of their own utilities,sanitation, and maintenance fees. Thus, the board hadinadvertently created the potential for a future financial crisisfor ACDC. Selected post-construction revenues, costs, andoperational information for ACDC follow.ACDC COST STRUCTURETable 1Payroll DetailLABOR COSTSACDC maintains a staff of employees assigned to each age-level classroom that is in compliance with DHS guidelines.The staff schedule is rotated throughout the week sothat the staff-to-child ratio is always maintained while noone employee works more than 40 hours per week. Theemployer's labor costs include the wages, FICA (7.65%), andthe SUTA rate (1%). The facility does not offer any otheremployee benefits. (See Table 1)AdministrativeKitchenInfant carePre-K careTotalsISSN 1940-204XWages$ 13.7509,00019,25038,50029,000$109,500VOL. 3, NO. 4, ART. 3, DECEMBER 2010Exhibit 2Excerpt from Building LeaseTaxes$1,1907801.6653,330$9,475TotalPayroll$14,9409,78020,91541,83031.510$118.975IT IS AGREED this 1st day of July, 20xx, by and betweenAppaloosa County Day Care Center, Inc., hereinafter referred toas Landlord; and Head Start, hereinafter referred to as Tenants:That the Landlord hereby leases to the Tenants and the Tenants hereby leasefrom the Landlord the following premises situated in Appaloosa County, USA,Three rooms and an office (2650 sq. ft.) in the "ACDC" day care center asspecified in the building plans, in consideration of the mutual promises of theparties herein and upon the terms, provisions, and conditions following:1.LEASE PERIOD. The term of this lease shall be for a period of twelvemonths starting July 1, 202. RENT. Tenants shall pay rental for the period as follows $530.00 on the 1stday of July and $530.00 on the 1st day of each month thereafter during thelease period, said rental thus at all times to be paid in advance for the month.The Landlord will pay all utilities, maintenance, and custodial services on thebuilding. The Landlord reserves all remaining rooms for their use or lease.OTHER OPERATING COSTSA complete listing of the organization's operating expensesis shown in Table 2. The costs not previously discussedinclude administrative or program costs such as accounting.advertising, continuing education, and supplies. These costsare attributable solely to ACDC,THE ACCOUNTANT'S CHALLENGERather than addressing the revenue and cost issues thatarose during the facility construction, the board took a "waitand see" position and opted to review both the childcarerates and rental rates after the new facility had begunoperations. After the first year of building occupancy, theACDC board d to evaluate the costsassociated with each of the day care's and tenants' programs.You are the center's accountant (and the only individual onthe board with significant financial knowledge), so the otherboard members have asked you to explain why the center isrunning at a loss. You indicate that you believe that both thechildcare rates and rental rates were set without establishingcorrelation to the costs that they were intended to coverYou also state that you want to take the time to completea thorough cost and profitability analysis of the day care'schildcare programs and tenant agreements. In order to do so,you decide to implement an activity-based costing system toallocate costs to the various programs and tenants.revenues

A non-profit organization named Appaloosa County Day Care Center, Inc. offers daycare services to children between six weeks and five years old. The center serves or engages with low-income people and is situated in a rural region. The center is considering several alternatives to boost its financial standing as it faces problems related to profitability. These alternatives consist of increasing tuition, cutting expenses, and expanding enrollment.The Appaloosa County Day Care Center, Inc. is having trouble making money, according to the case study. The daycare center may take into account the following three options to increase its profitability:1. Increase child care tuition fees: This is the simplest approach to boost income, but you must go cautiously to keep your current clientele. To find out what prices are reasonable in the area, the daycare center can think about surveying the market. Discounts for families with several children or those who pay their tuition in advance may also be available.Way to Implement:To find out what rates are competitive in the area, conduct a market survey.Create a strategy for telling parents about the new charges. The strategy needs to be obvious, succinct, and clear.Give families that pay their tuition in advance or those who have several children discounts. Be ready to respond to inquiries about the increased pricing from parents.2. Cut costs: The daycare center should look for methods to cut operational expenses, like haggling with suppliers for cheaper prices, using less energy, or getting rid of pointless expenditures. It is crucial to remember that any cost-cutting strategies shouldn't have an adverse effect on the standard of care that kids receive at the daycare center.Way to Implement:Examine the operating costs of the childcare center to find areas where spending might be cut.Negotiate and reduce the price you pay to suppliers.Cut down on energy use by weatherizing the childcare and shutting off lights and appliances when not in use.Review the daycare facility's operating expenses to identify areas where costs can be reduced.3. Expand enrollment: The daycare center can spread its fixed expenditures over a broader income base by expanding the number of enrolled children. Significant increases in profitability may result from this. The daycare center can concentrate on its outreach and marketing initiatives to boost enrollment. They might also provide bonuses for customer referrals to current clients.Way to Implement:Create a plan for outreach and marketing to attract new clients. Direct mail campaigns, social media marketing, and internet advertising may all be a part of this strategy.Give current clients referral bonuses.Collaborate with nearby companies and associations to provide childcare subsidies to their staff and members.Potential results by implementing these alternatives:Every alternative has the potential to improve the daycare center's profits in some way. It is vital to assess the possible advantages and disadvantages of each alternative, though. Raising tuition fees, for instance, can result in more revenue, but it might also result in fewer students enrolling and less pleased clients. Profitability may rise with cost deductions, but consideration must be taken to ensure that this doesn't compromise its service standards. A larger revenue base may result from rising enrolment, but it's vital to make sure the childcare center can continue to deliver high-quality care for a large number of children.Ultimately, a detailed examination of the facility's objectives and financial status is the best method to determine which option is ideal for the daycare center. The needs of the community it serves and its clients should also be taken into account by the daycare center.Based on the specific circumstances of the childcare facility, different potential results could be achieved by putting these alternatives into practice. On the other hand, the profitability of the daycare center might be increased by all three alternatives. It is imperative to acknowledge that modifications to tuition fees or running expenses must be implemented cautiously and with the children's and their families' best interests at the forefront.

Answered: Discuss at least three alternatives for…

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Discuss at least three alternatives for improving the overall profitability of the daycare facility. How would you implement those three alternatives and the potential results?