DAY CARE IN PUBLIC HOUSING

Assignment:

Dan Schaefer, Executive Director of the Petersburg, Virginia office of the Volunteers of America (VOA), is eager to gain approval from his Board of Directors to open a day care center in the Alta Vista housing community. Dan believes this proposal will be an ideal way to begin to rebuild Alta Vista, which the Petersburg VOA helped to establish in 1971 but which has since been beset by criminal activity and a poor quality of life for residents.

Although the case ends with the board approving Dans proposal, assume instead that you have been hired by Dan to help him analyze his proposal in preparation for the Board meeting. Specifically, Dan wants you to do the following.

Prepare a cost-volume profit (CVP) analysis of the financial implications of the proposal. Specifically, using the monthly projections in Attachment A of the case, prepare an analysis that includes projected revenue, variable costs, and fixed costs for enrollment levels of 20, 25, 30 and 37 students. Then, compute the weighted average contribution margin (CM) per student (computed as total CM divided by number of students enrolled) and the number of students needed to enroll to break even at each of the four levels of enrollment. An Excel template is provided for this purpose on the course web page; variable and fixed costs are already sorted on this spreadsheet, but the raw data and formulas are not included.

Prepare a memo for Dan that includes:

your view of the mission(s) of the national VOA and the VOA Petersburg office and the goals of the Alta Vista day care center;

pros and cons/risks of the Alta Vista day care center project;

an interpretation of the results of your CVP analysis and the sensitivity of those results to changes in any numbers;

recommendations for Dan about what should be considered and/or done before the board meeting.

NOTE: There is a typo in Attachment A of the case. On page 6 of the case, go to the expense line for salaries - cook. Follow across to the columns for 30 and 37 students.

Cook salaries are shown as: Cook salaries SHOULD BE: Total salary expense for 30 students is correct at $4,665

for 30 students: 737737 for 30 students: 737 Total salary expenses for 37 students is INCORRECT

for 37 students: there's a blank for 37 students: 737 and should be $5,402 (not $5,462 as shown)

The following questions are intended to guide you in the identification of important case issues.

1) Is financial planning important to Petersburgs success in achieving its mission?

2) What does the Petersburg office hope to achieve by opening the Alta Vista day care center? In other words, what type of program do they have planned, and why do they think it would be good for them and for Alta Vista?

3) What are the risks (both financial and nonfinancial) in opening the day care center? Who bears these risks, and can they afford to bear them? Where do the uncertainties lie? What might be done to mitigate these risks and uncertainties?

4) Where did the Petersburg office get the financial information used for the projections in Attachment A of the case?

5) How would you describe the cost structure of Alta Vista day care center? In other words, what costs on Attachment A can be managed --- can any of the variable or fixed costs be avoided? Are there any costs that might be missing from Attachment A?

6) What is the break-even number of students needed to enroll without the administrative fee to the VOA office? Should this fee be charged to the day care center in the short term? In the long term? Is charging the fee consistent with the VOAs mission?

7) What age group will the day care center rely on for the greatest portion of their revenue? At what childs age must a recipient of Aid to Dependent Children (ADC) begin looking for work?

8) How would the results of the CVP analysis change if the day care center did NOT enroll part-time five-year-olds, and instead replaced those spots with enrollment for full-time two-to-three-year-olds?

9) If the Alta Vista day care center opens based on Dans current plan, do you predict that it will succeed or fail?

10) Page 3 of the case states that the board members were not much interested in pouring over the numbers and approved the proposal. What are some questions the board members should have asked?