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ACC - The Daycare Center has been in business for a number of years

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Question;The Daycare Center has been in business for a number of years and until recently has been profitable. A few months ago, regional management dismissed a director who had a confrontational style, potentially causing a decrease in attendance. During the former director?s employ, many clients were lost and a complete staff turnover occurred. The new director is enthusiastic and energetic, and while experienced in daycare operations, has no business training. You have been retained as a consultant for the Daycare Center. This will give you an opportunity to use some of the skills you have recently learned in ACCT 551 Accounting for Managers. Your ultimate goal will be a report to the director outlining a strategy for improved profitability for the Daycare Center. To do that, you will need to understand how the business is operating now and decide what areas need improvement. You will need a new forecast of the next two quarters, assuming no change in the current operations. By comparing this to the current yearly plan, you will see how far off the plan the Daycare Center is operating. The following analyses should be prepared:A Fixed versus Variable AnalysisCost Function Analysis: Account Analysis MethodHigh-Low MethodRegression Analysis MethodForecast: Using the Account Analysis Method prepare a forecast for the third and fourth quarters based on current management strategy ? include a row for expected FTEs by quarter.Prepare a Proforma Forecast versus Budget for the current yearDetermine Profitability by FTECalculate BreakevenPrepare a Cost/Volume/Profit Chart using the budgeted data and one using the forecasted data.GENERAL INFORMATIONThe Daycare Center is open Monday through Friday and provides care for children in the following categories: Infants (ages 0?18 months), Toddlers (ages 18?36 months), Preschool (ages 3?5 years), Kindergarten (ages 6?7 years), and School-Age Children (ages 8?11 years). Children enroll for either full-day or half-day care. Full-time billing rates vary from infants at $262 per week to $127 for school-age children. Half-day rates vary from $183 for toddlers to $89 per week for school-age children. Note that two half-day students equal one full-time-equivalent student (FTE) for headcount purposes. The center is licensed by the state and meets all regulatory requirements forhealth and safety. The center is located in an affluent community and has four other competitors in a five-mile radius. All centers offer comparable programs, at comparable rates. The challenge to the Daycare Center is to increase enrollment.The director does not have balance sheet information, but has provided you with the following information:EXHIBIT 1: Daycare Center Budget 2012?2013 by QuarterEXHIBIT 2: Actual Results by Quarter for Q1 and Q2, 2012?2013EXHIBIT 3: Variance Report of Current Versus Budget Numbers by ExpenseThe fiscal year starts in September and closes in August.One way of starting to understand what the financial condition of the Daycare Center is, is to compare what ishappening to what was planned in the budget. A common way to do that is to compare actual expenses to budgeted expenses. A variance report of current versus budget numbers by expense for the first two quarters has been prepared for you and is attached as Exhibit 3. What are your observations about the differences? It is obvious that the daycare center is not achieving budgeted sales and net income, but let?s looks deeper. A simple guess might be that they need to cut expenses, that is not the right answer. What expenses are the ones causing the large losses? Are they fixed or variable expenses? If they are fixed expenses, they cannot be cut.

 

Paper#39108 | Written in 18-Jul-2015

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