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My Question is attached. Thanks!! Case: Middlehurst House Middlehurst House is a daycare center/preschool which operates as a partnership of George Friedman and Bill Compton.
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Case: Middlehurst House Middlehurst House is a daycare center/preschool which operates as a partnership of George Friedman and Bill Compton. The center is in a city that has a large base of twoincome families who have a need for quality day care. The two men started the center this year. Compton contributed $40,000 to get the business startedto purchase equipment and to operate through the early months. Friedman, who previously managed another center, is the director of the center and draws $2,000 per month for his services. Partnership profits and losses, after Friedman's salary, are split 75 percent for Compton and 25 percent for Friedman. Middlehurst House operates from 6 a.m. to 6 p.m., Monday through Friday. It is in a single building that has a capacity limit of 120 children and meets city and state regulations. At present, the center has six classes, all at maximum sizes, structured as follows: classes per class Number of Children children Total Monthly tuition per child 2 to 3 2 10 20 $320 3 to 4 1 15 15 280 4 to 5 1 15 15 280 5 to 6 2 15 30 260 Class sizes are determined by state law which sets a limit on the number of children per instructor. The center uses one instructor per classroom. Tuition is charged monthly. Minor adjustments are made on an individual basis. In October, the most recent month with data available, revenues were $21,500 ($22,600 less $1,100 adjustments). Monthly revenues should be rather stable since classes are full most of the time. Expenses for October were: Salaries for instructors $ 9,600 Salary of director 2,000 Salary of part-time cook 900 Food expenses 2,200 Staff benefits expenses 2,450 Supplies expenses 600 Occupancy and other administrative expenses 3,250 Total expenses $21,000 Fixed expenses are the salary of the part-time cook and occupancy and other administrative expenses. The salary of the director is fixedas a partnership, this is in reality a distribution of profits, but it is included in expenses for comparative purposes. Food is $1.25 per student per day. Staff benefits are 10 percent of salaries plus $200 per person for benefit programs for instructors and the part-time cook. Variable supplies are $1 per student per month. Step costs are salaries for instructors, averaging $1,600 per instructor per class. Friedman wants to increase the quality of service by decreasing class sizes and also by expanding student enrollments. These alternatives are interrelated. Friedman thinks that class sizes are too large and that children are not getting the individual attention they require. Friedman surveyed parents of all 80 students to measure their support for a tuition increase tied to a reduction in class size. For children ages 2 to 5, most parents would support a 25 percent tuition increase, and nearly 50 percent would support a 50 percent increase. Of the 5-to-6 age group parents, nearly three fourths did not want any increase. The remainder said they would support a 25 percent increase but no more. Proper class size is very subjective. However, Friedman feels that he could achieve a child/ instructor ratio of 6 to 1 for the 2-to-3 age group, an 8 to 1 ratio for the 3-to-4 and 4-to-5 age groups, and a 10 to 1 ratio for the 5-to-6 age group. The center has easily maintained the 80-student level, with each class full. Friedman keeps in touch with waiting-list parents to make certain each is still interested. This list provides children when someone leaves the center. The current waiting list is as follows: Age group Number of children Age group Number of children 2 to 3 5 4 to 5 4 3 to 4 7 5 to 6 11 Friedman does not start a new class unless more students are on the waiting list than are required per class. Obviously, enough students are on the 5-to-6 age group waiting list to start a new class. Lately, however, he has wondered if the center could make a profit by starting classes with fewer than the requisite number, taking the chance that new students would appear and could be added immediately. Information from his various inquiries implies that a potential market for quality infant care (0 to 24 months) exists. Friedman doesn't think this expansion would be profitable. However, he has never done an analysis of the situation and has not thought about an appropriate tuition. He believes that the infant/instructor ratio in his center should be no higher than 5 infants to one instructor. The center would have no food costs for the infants. Compton will only agree to Friedman's suggested changes if the center will continue to operate at or above the current profit level. Questions: Look at each decision separately, as incremental to the current situation, and evaluate the marginal profit: If class size is decreased (keeping the same 80 students), what increase in tuition is necessary to keep the current monthly profit level? Without regard to (a), is it profitable to create the new class from the waiting list? Explain. Use the new fee structure as found in (a). Is it profitable to move to smaller class sizes, if new full classes are created and filled to their new maximums using the waiting list? Show calculations. Is a class for infant care profitable if tuition is the same as the proposed class tuition for the 2-to-3 age group? Write a brief memo to Friedman and Compton highlighting any concerns that underlie the analyses you have performed in Part 1. BUS630 Grading Rubric Assignment: Middlehurst House Complete Case 9A (Middlehurst House) in Chapter 9. In this case, management is presented with several decision options. For this assignment, you are required to provide a three to five double-spaced written memo evaluating options and providing recommendations. The written memo should be properly formatted according to APA guidelines and demonstrate research and critical thinking skills. Evaluations and recommendations should be supported by at least 4 scholarly sources from the Ashford Library or other external sources, excluding the textbook. In Question 1, evaluate each decision separately in full detail including calculations, as necessary. The evaluation should be included as part of the memo discussion, not a separate component. Evaluations can be included as appendices, exhibits or figures; however must be properly referenced within the written content. In Question 2, prepare a comprehensive business memo addressing each decision and your recommendation. The memo should be properly formatted as a business memo and formatted according to APA guidelines. An example of a properly formatted business memo can be found at this link http://owl.english.purdue.edu/owl/resource/590/04/ . Week 5 Written Assignment should: Demonstrate graduate level work including appropriate research and critical thinking skills. Be presented as a business memo (not a question/answer format). Incorporate case questions into the overall analysis. Follow APA formatting guidelines including title page, reference page and in-text citations. Consists of three to five double-spaced pages of content. Provide at least 4 scholarly sources, excluding the textbook. Grading Criteria Middlehurst House 8 points Content Criteria The Written Assignment includes evaluations and calculations (Question 1) and provides recommendation/conclusions based on analysis, written in the form of a business memo. The Written Assignment is three to five pages in length. Weight 4 Writing Skills The Written Assignment demonstrates correct grammar, spelling, and punctuation. 2 Research Criteria The Written Assignment provides at least 4 scholarly sources from the Ashford Library or other external sources, excluding the textbook. 1 Style Criteria Follow APA formatting guidelines including title page, reference page and in-text citations. 2 1 In the initial workings, total student per age group is total classes times by the number of students per class. Then, the fees per child are times by the total students per age group to arrive at the revenue per age group. Age Group Initial Workings 2 to 3 3 to 4 4 to 5 5 to 6 Number of Students per Class 10 15 15 15 Total Classes 2 1 1 2 Total students per age group 20 15 15 30 Fees Per child (in $) 320 280 280 260 Revenue Per Age group 6400 4200 4200 7800 If class size is decreased (keeping the same 80 students), the increase in tuition is necessary to keep the current monthly profit level Age Group 2 to 3 3 to 4 4 to 5 5 to 6 Proposed child instructor ratio Instructors required Total 6 to 1 8 to 1 8 to 1 10 to 1 4 1.875 1.875 3 incremental Cost Salaries 3,200 1,600 1,600 Salaries for director - - - - - Salaries of cook - - - - - - - Food Expense 1,600 8,000 - - - Staff benefit Expense 720 360 360 Supplies Expense - - - - expense - - - - Required Profit - - - - Incremental Revenue Required 3,920 1,960 1,960 Increment in tuition fee per student 196 131 131 65 N/A Percentage increase 0.61 0.47 0.47 0.25 0.48 360 1,800 Occupancy and other administrative 1,960 - 500 10,300 It is profitable to start a new class for the age group of 5 to 6 because all other options are not feasible only this is feasible till the required level of students is unavailable. Age Group Current Waiting list 2 to 3 3 to 4 4 to 5 5 to 6 Total 5 7 4 11 27 1600 1960 1120 2860 7540 Incremental Revenue Incremental Cost Salaries -1600 -1600 -1600 -1600 Food expense -6400 - -137.5 192.5 -110 302.5 -742.5 -360 -360 -360 -360 -1440 -5 -7 -4 -11 -27 -954 586.5 -1069.5 Staff benefit Expense Supplies Expense Net benefit / ( loss) -502.5 199.5 Incremental Revenue = Current waiting list*Fees per child Net benefit = Incremental Revenue - Incremental cost Infant Care class Expected revenue = Expected number of students x New rates = 5*516 = $2,580 Expected cost = Salary cost + Benefit + Supplies = 1,600 + 360 + 5 = 1965 Net Income = Expected Revenue - Expected cost = $2,580 - $1,965 = $615 It is profitable if tuition is the same as the proposed class tuition for the 2-to-3 age group because the net income is positive. MEMO to PARTNERS To: George Friedman and Bill Compton From: Middlehurst House DATE: 25th March 2013 Subject: Expanding the business The analysis of various options analyzed in 1st part indicates that it is possible to expand the business in different dimensions. One of the options is increasing the fees which are agreed by some parents but not all the categories. Another option is the optimum use of capacity which is 120 students being analyzed in option b to increase the numbers of the students and give the chance to student in the waiting list but it is unfavorable for all the age groups and the overall results are also unfavorable. The best option would be the option that gives higher net income and include increase in the number of students and reduce the class size and slightly increase in the fees but here the impact of increment in fees on the attendance of the student should be considered. Hence, the option to open the group for infant is feasible and segmented market should be explored. References: 1) http://www.ehow.com/how_6002965_calculate-incremental-cost.html 2) http://worklife.columbia.edu/affiliated-child-care-centers In the initial workings, total student per age group is total classes times by the number of students per class. Then, the fees per child are times by the total students per age group to arrive at the revenue per age group. Age Group Initial Workings 2 to 3 3 to 4 4 to 5 5 to 6 Number of Students per Class 10 15 15 15 Total Classes 2 1 1 2 Total students per age group 20 15 15 30 Fees Per child (in $) 320 280 280 260 Revenue Per Age group 6400 4200 4200 7800 If class size is decreased (keeping the same 80 students), the increase in tuition is necessary to keep the current monthly profit level Age Group 2 to 3 3 to 4 4 to 5 5 to 6 Proposed child instructor ratio Instructors required Total 6 to 1 8 to 1 8 to 1 10 to 1 4 1.875 1.875 3 incremental Cost Salaries 3,200 1,600 1,600 Salaries for director - - - - - Salaries of cook - - - - - - - Food Expense 1,600 8,000 - - - Staff benefit Expense 720 360 360 Supplies Expense - - - - expense - - - - Required Profit - - - - Incremental Revenue Required 3,920 1,960 1,960 Increment in tuition fee per student 196 131 131 65 N/A Percentage increase 0.61 0.47 0.47 0.25 0.48 360 1,800 Occupancy and other administrative 1,960 - 500 10,300 It is profitable to start a new class for the age group of 5 to 6 because all other options are not feasible only this is feasible till the required level of students is unavailable. Age Group Current Waiting list 2 to 3 3 to 4 4 to 5 5 to 6 Total 5 7 4 11 27 1600 1960 1120 2860 7540 Incremental Revenue Incremental Cost Salaries -1600 -1600 -1600 -1600 Food expense -6400 - -137.5 192.5 -110 302.5 -742.5 -360 -360 -360 -360 -1440 -5 -7 -4 -11 -27 -954 586.5 -1069.5 Staff benefit Expense Supplies Expense Net benefit / ( loss) -502.5 199.5 Incremental Revenue = Current waiting list*Fees per child Net benefit = Incremental Revenue - Incremental cost Infant Care class Expected revenue = Expected number of students x New rates = 5*516 = $2,580 Expected cost = Salary cost + Benefit + Supplies = 1,600 + 360 + 5 = 1965 Net Income = Expected Revenue - Expected cost = $2,580 - $1,965 = $615 It is profitable if tuition is the same as the proposed class tuition for the 2-to-3 age group because the net income is positive. MEMO to PARTNERS To: George Friedman and Bill Compton From: Middlehurst House DATE: 25th March 2013 Subject: Expanding the business The analysis of various options analyzed in 1st part indicates that it is possible to expand the business in different dimensions. One of the options is increasing the fees which are agreed by some parents but not all the categories. Another option is the optimum use of capacity which is 120 students being analyzed in option b to increase the numbers of the students and give the chance to student in the waiting list but it is unfavorable for all the age groups and the overall results are also unfavorable. The best option would be the option that gives higher net income and include increase in the number of students and reduce the class size and slightly increase in the fees but here the impact of increment in fees on the attendance of the student should be considered. Hence, the option to open the group for infant is feasible and segmented market should be explored. References: 1) http://www.ehow.com/how_6002965_calculate-incremental-cost.html 2) http://worklife.columbia.edu/affiliated-child-care-centers Look at each decision separately, as incremental to the current situation, and evaluate the marginal profit: In the initial workings, total student per age group is total classes times by the number of students per class. Then, the fees per child are times by the total students per age group to arrive at the revenue per age group. Age Group Initial Workings 2 to 3 3 to 4 4 to 5 5 to 6 Number of Students per Class 10 15 15 15 Total Classes 2 1 1 2 Total students per age group 20 15 15 30 Fees Per child (in $) 320 280 280 260 Revenue Per Age group 6400 4200 4200 7800 If class size is decreased (keeping the same 80 students), what increase in tuition is necessary to keep the current monthly profit level? If class size is decreased (keeping the same 80 students), the increase in tuition is necessary to keep the current monthly profit level Age Group 2 to 3 3 to 4 4 to 5 5 to 6 Proposed child instructor ratio Instructors required Total 6 to 1 8 to 1 8 to 1 10 to 1 4 1.875 1.875 3 incremental Cost Salaries Salaries for director 3,200 1,600 1,600 1,600 - 8,000 - - - - Salaries of cook - - - - - Food Expense - - - - - Staff benefit Expense 720 360 360 Supplies Expense - - - - expense - - - - Required Profit - - - - Incremental Revenue Required 3,920 1,960 1,960 Increment in tuition fee per student 196 131 131 65 N/A Percentage increase 0.61 0.47 0.47 0.25 0.48 360 1,800 Occupancy and other administrative 1,960 - 500 10,300 Without regard to (a), is it profitable to create the new class from the waiting list? Explain. It is profitable to start a new class for the age group of 5 to 6 because all other options are not feasible only this is feasible till the required level of students is unavailable. Use the new fee structure as found in (a). Is it profitable to move to smaller class sizes, if new full classes are created and filled to their new maximums using the waiting list? Show calculations. Age Group Current Waiting list 2 to 3 3 to 4 4 to 5 5 to 6 Total 5 7 4 11 27 1600 1960 1120 2860 7540 -1600 -1600 -1600 -1600 -6400 Incremental Revenue Incremental Cost Salaries Food expense - -137.5 192.5 -110 302.5 -742.5 -360 -360 -360 -360 -1440 -5 -7 -4 -11 -27 -954 586.5 -1069.5 Staff benefit Expense Supplies Expense Net benefit / ( loss) -502.5 199.5 Incremental Revenue = Current waiting list*Fees per child Net benefit = Incremental Revenue - Incremental cost Infant Care class Expected revenue = Expected number of students x New rates = 5*516 = $2,580 Expected cost = Salary cost + Benefit + Supplies = 1,600 + 360 + 5 = 1965 Net Income = Expected Revenue - Expected cost = $2,580 - $1,965 = $615 Is a class for infant care profitable if tuition is the same as the proposed class tuition for the 2-to-3 age group? It is profitable if tuition is the same as the proposed class tuition for the 2-to-3 age group because the net income is positive. Write a brief memo to Friedman and Compton highlighting any concerns that underlie the analyses you have performed in Part 1. MEMO to PARTNERS To: George Friedman and Bill Compton From: Middlehurst House DATE: 25th March 2013 Subject: Expanding the business The analysis of various options analyzed in 1st part indicates that it is possible to expand the business in different dimensions. One of the options is increasing the fees which are agreed by some parents but not all the categories. Another option is the optimum use of capacity which is 120 students being analyzed in option b to increase the numbers of the students and give the chance to student in the waiting list but it is unfavorable for all the age groups and the overall results are also unfavorable. The best option would be the option that gives higher net income and include increase in the number of students and reduce the class size and slightly increase in the fees but here the impact of increment in fees on the attendance of the student should be considered. Hence, the option to open the group for infant is feasible and segmented market should be explored. References: 1) http://www.ehow.com/how_6002965_calculate-incremental-cost.html 2) http://worklife.columbia.edu/affiliated-child-care-centers In the initial workings, total student per age group is total classes times by the number of students per class. Then, the fees per child are times by the total students per age group to arrive at the revenue per age group. Age Group Initial Workings 2 to 3 3 to 4 4 to 5 5 to 6 Number of Students per Class 10 15 15 15 Total Classes 2 1 1 2 Total students per age group 20 15 15 30 Fees Per child (in $) 320 280 280 260 Revenue Per Age group 6400 4200 4200 7800 If class size is decreased (keeping the same 80 students), the increase in tuition is necessary to keep the current monthly profit level Age Group 2 to 3 3 to 4 4 to 5 5 to 6 Proposed child instructor ratio Instructors required Total 6 to 1 8 to 1 8 to 1 10 to 1 4 1.875 1.875 3 incremental Cost Salaries 3,200 1,600 1,600 Salaries for director - - - - - Salaries of cook - - - - - - - Food Expense 1,600 8,000 - - - Staff benefit Expense 720 360 360 Supplies Expense - - - - expense - - - - Required Profit - - - - Incremental Revenue Required 3,920 1,960 1,960 Increment in tuition fee per student 196 131 131 65 N/A Percentage increase 0.61 0.47 0.47 0.25 0.48 360 1,800 Occupancy and other administrative 1,960 - 500 10,300 It is profitable to start a new class for the age group of 5 to 6 because all other options are not feasible only this is feasible till the required level of students is unavailable. Age Group Current Waiting list 2 to 3 3 to 4 4 to 5 5 to 6 Total 5 7 4 11 27 1600 1960 1120 2860 7540 Incremental Revenue Incremental Cost Salaries -1600 -1600 -1600 -1600 Food expense -6400 - -137.5 192.5 -110 302.5 -742.5 -360 -360 -360 -360 -1440 -5 -7 -4 -11 -27 -954 586.5 -1069.5 Staff benefit Expense Supplies Expense Net benefit / ( loss) -502.5 199.5 Incremental Revenue = Current waiting list*Fees per child Net benefit = Incremental Revenue - Incremental cost Infant Care class Expected revenue = Expected number of students x New rates = 5*516 = $2,580 Expected cost = Salary cost + Benefit + Supplies = 1,600 + 360 + 5 = 1965 Net Income = Expected Revenue - Expected cost = $2,580 - $1,965 = $615 It is profitable if tuition is the same as the proposed class tuition for the 2-to-3 age group because the net income is positive. MEMO to PARTNERS To: George Friedman and Bill Compton From: Middlehurst House DATE: 25th March 2013 Subject: Expanding the business The analysis of various options analyzed in 1st part indicates that it is possible to expand the business in different dimensions. One of the options is increasing the fees which are agreed by some parents but not all the categories. Another option is the optimum use of capacity which is 120 students being analyzed in option b to increase the numbers of the students and give the chance to student in the waiting list but it is unfavorable for all the age groups and the overall results are also unfavorable. The best option would be the option that gives higher net income and include increase in the number of students and reduce the class size and slightly increase in the fees but here the impact of increment in fees on the attendance of the student should be considered. Hence, the option to open the group for infant is feasible and segmented market should be explored. References: 1) http://www.ehow.com/how_6002965_calculate-incremental-cost.html 2) http://worklife.columbia.edu/affiliated-child-care-centers In the initial workings, total student per age group is total classes times by the number of students per class. Then, the fees per child are times by the total students per age group to arrive at the revenue per age group. Age Group Initial Workings 2 to 3 3 to 4 4 to 5 5 to 6 Number of Students per Class 10 15 15 15 Total Classes 2 1 1 2 Total students per age group 20 15 15 30 Fees Per child (in $) 320 280 280 260 Revenue Per Age group 6400 4200 4200 7800 If class size is decreased (keeping the same 80 students), the increase in tuition is necessary to keep the current monthly profit level Age Group 2 to 3 3 to 4 4 to 5 5 to 6 Proposed child instructor ratio Instructors required Total 6 to 1 8 to 1 8 to 1 10 to 1 4 1.875 1.875 3 incremental Cost Salaries 3,200 1,600 1,600 Salaries for director - - - - - Salaries of cook - - - - - - - Food Expense 1,600 8,000 - - - Staff benefit Expense 720 360 360 Supplies Expense - - - - expense - - - - Required Profit - - - - Incremental Revenue Required 3,920 1,960 1,960 Increment in tuition fee per student 196 131 131 65 N/A Percentage increase 0.61 0.47 0.47 0.25 0.48 360 1,800 Occupancy and other administrative 1,960 - 500 10,300 It is profitable to start a new class for the age group of 5 to 6 because all other options are not feasible only this is feasible till the required level of students is unavailable. Age Group Current Waiting list 2 to 3 3 to 4 4 to 5 5 to 6 Total 5 7 4 11 27 1600 1960 1120 2860 7540 Incremental Revenue Incremental Cost Salaries -1600 -1600 -1600 -1600 Food expense -6400 - -137.5 192.5 -110 302.5 -742.5 -360 -360 -360 -360 -1440 -5 -7 -4 -11 -27 -954 586.5 -1069.5 Staff benefit Expense Supplies Expense Net benefit / ( loss) -502.5 199.5 Incremental Revenue = Current waiting list*Fees per child Net benefit = Incremental Revenue - Incremental cost Infant Care class Expected revenue = Expected number of students x New rates = 5*516 = $2,580 Expected cost = Salary cost + Benefit + Supplies = 1,600 + 360 + 5 = 1965 Net Income = Expected Revenue - Expected cost = $2,580 - $1,965 = $615 It is profitable if tuition is the same as the proposed class tuition for the 2-to-3 age group because the net income is positive. MEMO to PARTNERS To: George Friedman and Bill Compton From: Middlehurst House DATE: 25th March 2013 Subject: Expanding the business The analysis of various options analyzed in 1st part indicates that it is possible to expand the business in different dimensions. One of the options is increasing the fees which are agreed by some parents but not all the categories. Another option is the optimum use of capacity which is 120 students being analyzed in option b to increase the numbers of the students and give the chance to student in the waiting list but it is unfavorable for all the age groups and the overall results are also unfavorable. The best option would be the option that gives higher net income and include increase in the number of students and reduce the class size and slightly increase in the fees but here the impact of increment in fees on the attendance of the student should be considered. Hence, the option to open the group for infant is feasible and segmented market should be explored. References: 1) http://www.ehow.com/how_6002965_calculate-incremental-cost.html 2) http://worklife.columbia.edu/affiliated-child-care-centers Look at each decision separately, as incremental to the current situation, and evaluate the marginal profit: In the initial workings, total student per age group is total classes times by the number of students per class. Then, the fees per child are times by the total students per age group to arrive at the revenue per age group. Age Group Initial Workings 2 to 3 3 to 4 4 to 5 5 to 6 Number of Students per Class 10 15 15 15 Total Classes 2 1 1 2 Total students per age group 20 15 15 30 Fees Per child (in $) 320 280 280 260 Revenue Per Age group 6400 4200 4200 7800 If class size is decreased (keeping the same 80 students), what increase in tuition is necessary to keep the current monthly profit level? If class size is decreased (keeping the same 80 students), the increase in tuition is necessary to keep the current monthly profit level Age Group 2 to 3 3 to 4 4 to 5 5 to 6 Proposed child instructor ratio Instructors required Total 6 to 1 8 to 1 8 to 1 10 to 1 4 1.875 1.875 3 incremental Cost Salaries Salaries for director 3,200 1,600 1,600 1,600 - 8,000 - - - - Salaries of cook - - - - - Food Expense - - - - - Staff benefit Expense 720 360 360 Supplies Expense - - - - expense - - - - Required Profit - - - - Incremental Revenue Required 3,920 1,960 1,960 Increment in tuition fee per student 196 131 131 65 N/A Percentage increase 0.61 0.47 0.47 0.25 0.48 360 1,800 Occupancy and other administrative 1,960 - 500 10,300 Without regard to (a), is it profitable to create the new class from the waiting list? Explain. It is profitable to start a new class for the age group of 5 to 6 because all other options are not feasible only this is feasible till the required level of students is unavailable. Use the new fee structure as found in (a). Is it profitable to move to smaller class sizes, if new full classes are created and filled to their new maximums using the waiting list? Show calculations. Age Group Current Waiting list 2 to 3 3 to 4 4 to 5 5 to 6 Total 5 7 4 11 27 1600 1960 1120 2860 7540 -1600 -1600 -1600 -1600 -6400 Incremental Revenue Incremental Cost Salaries Food expense - -137.5 192.5 -110 302.5 -742.5 -360 -360 -360 -360 -1440 -5 -7 -4 -11 -27 -954 586.5 -1069.5 Staff benefit Expense Supplies Expense Net benefit / ( loss) -502.5 199.5 Incremental Revenue = Current waiting list*Fees per child Net benefit = Incremental Revenue - Incremental cost Infant Care class Expected revenue = Expected number of students x New rates = 5*516 = $2,580 Expected cost = Salary cost + Benefit + Supplies = 1,600 + 360 + 5 = 1965 Net Income = Expected Revenue - Expected cost = $2,580 - $1,965 = $615 Is a class for infant care profitable if tuition is the same as the proposed class tuition for the 2-to-3 age group? It is profitable if tuition is the same as the proposed class tuition for the 2-to-3 age group because the net income is positive. Write a brief memo to Friedman and Compton highlighting any concerns that underlie the analyses you have performed in Part 1. MEMO to PARTNERS To: George Friedman and Bill Compton From: Middlehurst House DATE: 25th March 2013 Subject: Expanding the business The analysis of various options analyzed in 1st part indicates that it is possible to expand the business in different dimensions. One of the options is increasing the fees which are agreed by some parents but not all the categories. Another option is the optimum use of capacity which is 120 students being analyzed in option b to increase the numbers of the students and give the chance to student in the waiting list but it is unfavorable for all the age groups and the overall results are also unfavorable. The best option would be the option that gives higher net income and include increase in the number of students and reduce the class size and slightly increase in the fees but here the impact of increment in fees on the attendance of the student should be considered. Hence, the option to open the group for infant is feasible and segmented market should be explored. References: 1) http://www.ehow.com/how_6002965_calculate-incremental-cost.html 2) http://worklife.columbia.edu/affiliated-child-care-centersStep by Step Solution
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