Question

The Little Beaver Daycare Centres, a not-for-profit organization, provides daycare services to low-income families in 20 communities in Alberta. The manager’s summary report for the past four months of operations is reproduced here:

Number of children Daycare fees March 849 $ 4,230 $ April 821 4,180 $ May 778 3,875 $ June 842 4,260 $ Total 3,290 16,545 Daycare staff salaries 13,254 13,256 13,254 14,115 53,879 Daycare supplies used 3,182 3,077 2,934 3,175 12,368 Administrative salaries 3,197 3,198 3,197 3,412 13,004 Rent 1,000 1,000 1,000 1,100 4,100 Utilities 226 226 226 226 904 Other expenses 2,854 2,776 2,671 2,828 11,129 Total expenses 23,713 23,533 23,282 24,856 95,384 Operating surplus (loss) $(19,483) $(19,353) $(19,407) $(20,596) $(78,839)

The daycare receives an operating subsidy from the province, but unfortunately, the operating loss that has been incurred through June $(78,839) is larger than anticipated. Part of the problem is the salary increase that went into effect in June, which had been overlooked when the budget was submitted to the city last year. To compound the problem, the warm summer months traditionally bring with them an increase in additional summer outdoor activities. Thus, the daycare experiences additional costs during July.

The daycare’s managers are considering an increase in daycare fees to reduce losses. However, they are reluctant to raise fees because the children are from low-income families. The daycare will raise fees only if necessary.

Answer 1

	Fixed	Variable	Cost Driver	Mixed
Daycare staff salaries	14,115.00
Daycare supplies used	219.00	3.49	Number of children	yes
Administrative salaries	3,412.00
Rent	1,100.00
Utilities	226.00
Other expenses	666.00	2.58	Number of children	yes
Total	19,738.00	6.07

Daycare supplies used variable cost = (3,182 - 2,934)/(849 - 778)

=3.49

Fixed cost = 219

Other expenses variable cost = (2,854 - 2,671)/(849 - 778)

=2.58

Fixed cost = 666

Cost formula = Total cost = 19,738 + (6.07 x number of children)

Total cost = 19,738 + (6.07 x 940)

=25,444