Budgeting Assigment question

Northville, a medium-sized city in the midwestern part of
the United States, has experienced

a significant change in the composition of its municipal
work force of 1,800

employees. Approximately thirty-five percent of the city
employees are now female. In a

recent survey of city employees, over forty percent have
said that “affordable daycare for

children” was important to them. Meanwhile Director of
the Office of Personnel Mary

Lux has become increasingly convinced that the lack of
affordable daycare is one of the

main reasons for absenteeism and lateness among city
employees. Mayor Petula Spark,

some of the members of the city council, and the leader of
the major city employees’

union, Denardo Legato, all agree that something should be
done. The question they are

trying to answer is, what should it be?

Mayor Spark is in favor of doing something, in principle,
but she is not in favor of

incurring a major new expense, given the many legitimate
claims on the city’s already

strained budget. She has told Legato, who is negotiating the
daycare program on behalf

of the city employees, “We’ll give you space and
utilities for a year at no cost. It is up to

you to come up with a suitable daycare center that conforms
to state and federal law.”

Several regulatory mandates and non-discrimination laws fall
into this category. The only

requirements specific to daycare centers are that (a) they
be licensed and inspected once a

year, (b) all new daycare workers take part in a three day
state-certified training program

and (c) the child/daycare giver ratio be no greater than 8
to 1. The annual inspection fee is

$500. The total cost of the three-day training program is
estimated to be $200 per

employee.

Mary Lux is responsible for planning the details of the
daycare program for the children

of city employees. With Mr. Legato’s approval, Ms. Lux has
negotiated an arrangement

with a local non-profit agency that is already providing
daycare services in the Northville

metropolitan area. Tiny Tots, Inc. has three locations; the
contract with the City of

Northville would be a fourth center. The Director of Tiny
Tots, Klara Nemet, is

enthusiastic about the prospects of a new center
specifically for city employees. While

discussing the proposed arrangements with Ms. Lux, Ms. Nemet
said, “We will not need

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any additional administrative staff, since Ms. Perfekt, my
administrative secretary, and I

could certainly handle the additional administrative
work.” Ms. Perfekt earns $1,300 a

month. Ms. Nemet’s salary is $2,400 a month. Tiny Tots, Inc.
also must pay 7.15 percent

of their salaries in the form of a social security
contribution, 8 percent for unemployment

and disability benefits; 6 percent of salaries goes to a
pension fund, and $60 per month for

health benefits is paid for each of them. These fringe
benefits apply to all employees of

Tiny Tots, Inc.

The additional details of the contract are as follows: the
daycare center will be open 20

days every month. Parents pay a monthly fee based on an
8-hour day (9:00 a.m. to 5:00

p.m.). Fees do not vary if less than a full day or less than
a month of daycare is used by

the parents. Based on projected demand, it is expected that
the daycare center will open

in January 1997 with 120 children. Ms. Nemet has been
successful in negotiating a ratio

of 6 children to 1 daycare worker for the first year of
operation.

Daycare workers earn $6.50 per hour. They work from 9 to 5
and get paid for eight hours.

Children get a snack and lunch. The food cost is $3.00 per
child per day. The cost of

supplies is $1.50 per child per day. The City of Northville
has purchased certain

equipment (such as cots and desks) for the first 120
children. However, these costs are

estimated to increase by $50 per child as the enrollment at
the daycare center goes up.

For the first four months, it is expected that the number of
children will grow by 10

percent, beginning in February 2000. Beginning June 2000,
the monthly growth is

expected to be 5 percent.

Parents pay $200 per month per child. In the first year,
Northville is “donating” space and

utilities. Ms. Lux says that this city contribution is worth
$2,000 a month. Mr. Legato

says that the union will contribute to the cost of the
city’s new daycare center by

providing $1.00 per child per day for the children of union
members. It is estimated that

70 percent of the children will be children of union
members. The state has a subsidized

daycare start-up grant for the first year of operation. This
grant is $90,000 a year.

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DAYCARE COMPUTER EXERCISE, PART 1

You are a budget analyst in the Budget Office of the City of
Northville. Mayor Spark just

asked you to “run some numbers” so that she can
take a look at the arrangement that was

just negotiated between Ms. Lux, Mr. Legato, and Ms. Nemet.
You should prepare the

budget in a spreadsheet. Since Mayor Spark may ask you some
questions about the day

care budget, you should prepare the budget using parameters
and as many formulas as

possible. A well-designed (and flexible) spreadsheet will
simplify your task later.

Complete the following tasks and provide the tables and a
brief one-page memo

describing your findings:

1) Prepare the baseline 2000 monthly budget for the daycare.
(You can assume a calendar

year.) Determine the total surplus and deficit for each
month.

2) Suppose the child/staff ratio were changed to the maximum
allowed by law. What

impact would this have on the budget?

3) What would happen to the deficit if the enrollment
increased by only 5 percent per

month for all months?

4) What other changes can be made to balance the budget?
What are the advantages and

disadvantages of these changes? Produce a balanced budget
and defend your choice of changes.