Week_5_Assignment_CASE_9A.pdf CASE 9A – MIDDLEHURST HOUSE


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Week_5_Assignment_CASE_9A.pdf CASE 9A – 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 started—to 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: 2 to 3 3 to 4 4 to 5 5 to 6 Number of classes 2 1 1 2 Children per class 10 15 15 15 Total children 20 15 15 30 Monthly tuition per child $320 280 280 260 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 Salary of director Salary of part-time cook Food expenses Staff benefits expenses Supplies expenses Occupancy and other administrative expenses Total expenses $9,600 2,000 900 2,200 2,450 600 3,250 $21,000 Fixed expenses are the salary of the part-time cook and occupancy and other administrative expenses. The salary of the director is fixed—as 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 th

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