Middle Hurst House Case Study
Middle Hurst House
Rita Fountain
BUS 630 Managerial Accounting
Frederick Seiler
November 10, 2014
TO: George Friedman and Bill Compton
FROM: Rita Fountain DATE: November 10, 2014 SUBJECT: Profitability of Expansion
Presently the Middle Hurst House daycare center/ preschool is using one instructor per classes and is incompliance with state regulations. Class sizes are determined by state law which sets a limit on the number of children per instructor. Mr. George Friedman wants to increase the quality of services by decreasing class sizes and also by expanding student enrollment. Mr. Compton major concern is maintain present profit margins.
By performing an incremental analysis based on Mr. Friedman’s survey …show more content…
Friedman’s desire to begin offering quality infant care. This expansion will be profitable. It does not require an increase in food costs. Using ratio of 5 infants to one instructor will produces revenue in the amount of $2590 per month. Instructor salary, and benefits will cost $ 1960 per month. The variable supplies cost will be only $5 per month and yield $625 per month in profits. Overall my analysis shows that Friedman’s desire to increase the quality of service by decreasing class sizes and also by expanding student enrollment will be profitable. It also, maintains the profit margin expected by Mr. Compton. My concern is that the tuition increases are beyond what parents are supportive of. I recommend that an additional survey be performed, including the tuition changes I have provided. This will give a more accurate analyses of the number of parents who will support an
Increase of this size. However, I strongly recommend the expansion into quality infant care services. Cost are minimal in relationship to potential …show more content…
Salaries (1 instructor x 1600) $1600
Staff benefits ($1600 x10%) +(1 x$200) 360
Incremental Costs $1960
1b.
Incremental revenue ($260 x 10 students) $2600
Minus incremental cost: Instructor’s Salary $1600 Staff Benefits {(10%x $1600) + $200} 360 Food ($1.25 x10 students x22days) 275 Variable supplies ($1 x 10 students) 10 $2245
Incremental profit $ 355
1c.
Incremental revenue
Increased fees, old students:
2-3 age group ($198 x 20) 3960
3-4 age group ($130.66 x 15) 1960
4-5 age group ($130.66 x 15) 1960
5-6 age group ($ 65.33 x 30) 1960
New Students
2-3 age group ($518 x 4) 2072
3-4 age group ($ 411 x1) 411
4-5 age group ($ 411 x 1) 411
5-6age group ($325 x 10) 3250
Total incremental revenue $15984
Minus incremental Costs:
Instructors (7 new classes x $ 1600) 11200 Staff benefits {(10% x $11200) + $1400} 2520 Food ($1.25 x 16 students x 22days) 440 Variable supplies ($1 x 16 students) 16 Total incremental cost $14176
Incremental Profit $ 1808
This Alternative increase profits by $ 1808.00
1d.
New Infant
Rita Fountain
BUS 630 Managerial Accounting
Frederick Seiler
November 10, 2014
TO: George Friedman and Bill Compton
FROM: Rita Fountain DATE: November 10, 2014 SUBJECT: Profitability of Expansion
Presently the Middle Hurst House daycare center/ preschool is using one instructor per classes and is incompliance with state regulations. Class sizes are determined by state law which sets a limit on the number of children per instructor. Mr. George Friedman wants to increase the quality of services by decreasing class sizes and also by expanding student enrollment. Mr. Compton major concern is maintain present profit margins.
By performing an incremental analysis based on Mr. Friedman’s survey …show more content…
Friedman’s desire to begin offering quality infant care. This expansion will be profitable. It does not require an increase in food costs. Using ratio of 5 infants to one instructor will produces revenue in the amount of $2590 per month. Instructor salary, and benefits will cost $ 1960 per month. The variable supplies cost will be only $5 per month and yield $625 per month in profits. Overall my analysis shows that Friedman’s desire to increase the quality of service by decreasing class sizes and also by expanding student enrollment will be profitable. It also, maintains the profit margin expected by Mr. Compton. My concern is that the tuition increases are beyond what parents are supportive of. I recommend that an additional survey be performed, including the tuition changes I have provided. This will give a more accurate analyses of the number of parents who will support an
Increase of this size. However, I strongly recommend the expansion into quality infant care services. Cost are minimal in relationship to potential …show more content…
Salaries (1 instructor x 1600) $1600
Staff benefits ($1600 x10%) +(1 x$200) 360
Incremental Costs $1960
1b.
Incremental revenue ($260 x 10 students) $2600
Minus incremental cost: Instructor’s Salary $1600 Staff Benefits {(10%x $1600) + $200} 360 Food ($1.25 x10 students x22days) 275 Variable supplies ($1 x 10 students) 10 $2245
Incremental profit $ 355
1c.
Incremental revenue
Increased fees, old students:
2-3 age group ($198 x 20) 3960
3-4 age group ($130.66 x 15) 1960
4-5 age group ($130.66 x 15) 1960
5-6 age group ($ 65.33 x 30) 1960
New Students
2-3 age group ($518 x 4) 2072
3-4 age group ($ 411 x1) 411
4-5 age group ($ 411 x 1) 411
5-6age group ($325 x 10) 3250
Total incremental revenue $15984
Minus incremental Costs:
Instructors (7 new classes x $ 1600) 11200 Staff benefits {(10% x $11200) + $1400} 2520 Food ($1.25 x 16 students x 22days) 440 Variable supplies ($1 x 16 students) 16 Total incremental cost $14176
Incremental Profit $ 1808
This Alternative increase profits by $ 1808.00
1d.
New Infant