Part 1 A – Revenue vs Cost-Based Funding
If TCDC joins CWELCC and operates at full capacity, determine the expected
government revenue under the two funding models for its childcare program:
Funding under the two plans:
Particulars Amount
($Mn)
Funding under Legacy Plan 5.30
Funding under New Plan 12.90
Legacy plan:
Age-Group Rate Govt Cap Enrolment Days Funding
Infants 78.71 22 38 250 538,745
Toddlers 59.32 22 165 250 1,539,450
Pre-school 53.48 22 310 250 2,439,700
Kindergarten 32.5 22 298 250 782,250
811 5,300,145
New Cost Based Funding:
Employee cost – Variable Program Staffing Cost
Age group Per day Ancillary Total TCDC - Days Students Funding
Toronto GAF
Infants 92.03 12.33 104.36 111.67 250.00 38 1,060,840
Toddlers 56.48 7.57 64.05 68.53 250.00 165 2,826,933
Pre-school 39.23 5.26 44.49 47.60 250.00 310 3,689,070
Kindergarten 15.03 2.01 17.04 18.24 250.00 298 1,358,664
811 8,935,506
Supervisor Cost – Fixed Program Staffing Cost
Age group Fixed per Ancillar Total TCDC - No of Days Funding
service day y Toronto centers
GAF
Per center 301.38 48.82 350.20 374.72 9 250 843,115
Operational & Ancillary Cost
Age group Per Fixed Total TCDC - Students Days Funding
operating Toronto
space day GAF
Infants 3.80 9.61 13.41 14.35 38.00 250.00 136,313
Toddlers 3.80 9.61 13.41 14.35 165.00 250.00 591,884
Pre-school 3.80 9.61 13.41 14.35 310.00 250.00 1,112,024
Kindergarten 3.56 1.56 5.12 5.48 298.00 250.00 408,141
2,248,362
Accommodation Costs:
Age group Per license TCDC - Students Funding
per year Toronto
GAF
Infants 1622.91 1736.51 38.00 65,988
Toddlers 974.25 1042.45 165.00 172,004
Pre-school 797.58 853.41 310.00 264,557
Kindergarten 1173.42 1255.56 298.00 374,157
876,705
Part 1 B – Revenue vs Cost-Based Funding
What are the risks and trade-offs associated with moving from a revenue-based
funding model to a cost-based funding model for TCDC?
• Administrative Complexity: Adopting the cost-based funding increases
administrative complexity because it may involve more stringent audits and poses
the risk of having unspent or surplus funds reclaimed, which limits opportunities for
long-term planning.
• Higher Uncertainty: If government benchmark costs are too low or actual
expenses exceed the model's coverage then TCDC risks potential underfunding.
• Limited Savings: The new model may restrict the ability to accumulate surpluses
for future facility expansions or emergency needs.
Part 2 A – Fixed Cost Allocation
Using the allocation method described above, allocate the total fixed costs across
childcare and before and after school programs based on the operating hours
provided.
o Justify the appropriateness of this allocation method.
Allocating fixed costs based on operating hours is a suitable method for day care
centers because it reflects the time-based nature of a hospitality service where
human manpower is the primary cost driver. Since services are measured in hours,
this approach ties costs to resource usage—staff time, facility operation, and
utilities—more accurately than other methods. For example, a childcare program
running 8 hours uses more resources than a 2-hour before-and-after-school
program, justifying a larger cost share. It follows the cost causality principle,
ensuring each program bears costs proportional to its operational demand. Plus,
operating hours are objective and easy to track, making the allocation fair and
transparent for management.
o Management had also considered using the number of children as an
allocation method for fixed costs. Why might this be a less appropriate
approach compared to using operating hours?
Using the number of children as an allocation base is less appropriate than
operating hours because fixed costs like rent, maintenance, and administrative
salaries don’t scale directly with headcount—they’re incurred as long as the center
is open. Operating hours better capture the duration and intensity of resource use;
for instance, 10 kids in an 8-hour program consume more staff time and utilities
than 15 kids in a 2-hour session, despite the lower headcount. Additionally,
headcount can fluctuate daily due to attendance, leading to inconsistent or unfair
cost assignments. In a manpower-driven service, time is a more reliable driver than
numbers, making operating hours a stronger choice for fixed cost allocation.
Allocation of hours
Program Per day Days Annual Ratio
Childcare 11.50 250 2875 72%
Before/After school 4.50 250 1125 28%
4000 100%
Allocation of Fixed Cost based on Hours:
Fixed portion
Total Before/After
Expense category Fixed Variable 2024 Cost Total fixed Childcare
variable School
Advertising and promotion 100% 0% 37,631 - 37,631 27,047.28 10,583.72
Amortization of tangible 100% 0% 395,545 - 395,545 284,297.97 111,247.03
Bad debts (recovery) 100% 0% 580 - 580 416.88 163.13
Computer services 80% 20% 62,976 12,595 50,381 36,211.20 14,169.60
Equipment leasing 100% 0% 10,220 - 10,220 7,345.63 2,874.38
Fees and dues 100% 0% 35,623 - 35,623 25,604.03 10,018.97
Food 0% 100% 396,578 396,578 - - -
Insurance 100% 0% 55,926 - 55,926 40,196.81 15,729.19
Interest and bank charges 90% 10% 9,881 988 8,893 6,391.77 2,501.13
Office and miscellaneous 60% 40% 28,536 11,414 17,122 12,306.15 4,815.45
Personal protectives equip 30% 70% 9,048 6,334 2,714 1,950.98 763.43
Professional fees 100% 0% 286,447 - 286,447 205,883.78 80,563.22
Program supplies 30% 70% 206,629 144,640 61,989 44,554.38 17,434.32
Program transportation an 0% 100% 69,941 69,941 - - -
Rental 100% 0% 735,432 - 735,432 528,591.75 206,840.25
Repairs and maintenance 5 50% 50% 187,749 93,875 93,875 67,472.30 26,402.20
Security system 100% 0% 3,585 - 3,585 2,576.72 1,008.28
Staff development 100% 0% 69,992 - 69,992 50,306.75 19,685.25
Telephone 90% 10% 20,824 2,082 18,742 13,470.53 5,271.08
Utilities 70% 30% 20,047 6,014 14,033 10,086.15 3,946.75
1,769,823.0
Wages and benefits 25% 75% 9,849,450 7,387,088 2,462,363 5 692,539.45
12,492,640 8,131,549 4,361,091 3,134,534 1,226,557
Part 2 B – Breakeven Analysis
1. Given the current enrollment in before and after school programs, what must
the variable cost per student be to achieve break-even at the existing pricing
level?
2. Based on your calculated variable cost per student, does this amount seem
reasonable given the operational requirements of running the before and
after school programs? Consider key cost drivers such as staffing, supplies,
and program activities.
