Coldville, 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 day care for children” was important to them. Meanwhile Director of the
Office of Personnel Mary Lux has become increasingly convinced that the lack of affordable day care 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 day care 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 day care center that conforms to
state and federal law.” Several regulatory mandates and non-discrimination laws fall into this category.
The only requirements specific to day care centers are that (a) they be licensed and inspected once a
year, (b) all new day care workers take part in a three day state-certified training program and (c) the
child/day care 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 day care 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 day care services in the Coldville metropolitan area.
Tiny Tots, Inc. has three locations; the contract with the City of Coldville 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 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 day care 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 day care is used by the parents.
· Based on projected demand, it is expected that the day care center will open in January 2014
with 120 children. Ms. Nemet has been successful in negotiating a ratio of 6 children to 1 day care worker
for the first year of operation.
· Day care workers earn $7.00 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 Coldville 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 day care center goes up. EXAMPLE: The City of Coldville will pay for the cots for 120
children in January, if 10 children are added in a subsequent month, then 10 X $50 would be budgeted in
that month for the additional children.
For the months of February through May, the enrollment growth is expected to grow by 10 % each month;
effective June through December monthly enrollment growth equals 5% per month
· Parents pay $200 per month per child.
· In the first year, Coldville 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 day
care 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 day care start-up grant for the first year of operation. This grant is
$100,000 a year.

You are a budget analyst in the Budget Office of the City of Coldville. 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. A well-designed (and
flexible) spreadsheet will simplify your task later. Complete the following:
1) Prepare the baseline 2014 monthly budget for the day care. (You can assume a calendar year.)
Determine the total surplus (profit) and deficit (loss) for each month.