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Middlehurst House
Complete: Case 9A (Middlehurst House)
(TUTOR EXPER: PLEASE FOLLOW THESE INSTRUCTIONS FULLY PLEASE!!!!!!)
In this case, management is presented with several decision options. For this assignment, you are required to provide a two to three single-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 four scholarly sources from the Ashford University 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:
CASE 9A – MIDDLEHURST HOUSEMiddlehurst House is a daycare center/preschool which operates as a partnership of GeorgeFriedman and Bill Compton. The center is in a city that has a large base of twoincome familieswho have a need for quality day care. The two men started the center this year. Comptoncontributed $40,000 to get the business started—to purchase equipment and to operate throughthe early months. Friedman, who previously managed another center, is the director of the centerand draws $2,000 per month for his services. Partnership profits and losses, after Friedman'ssalary, 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 singlebuilding 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:Numberof classesChildrenper classTotalchildrenMonthly tuitionper child2 to 3 2 10 20 $3203 to 4 1 15 15 2804 to 5 1 15 15 2805 to 6 2 15 30 260Class sizes are determined by state law which sets a limit on the number of children perinstructor. The center uses one instructor per classroom.Tuition is charged monthly. Minor adjustments are made on an individual basis. In October, themost recent month with data available, revenues were $21,500 ($22,600 less $1,100adjustments). Monthly revenues should be rather stable since classes are full most of the time.Expenses for October were:Salaries for instructors $9,600Salary of director 2,000Salary of part-time cook 900Food expenses 2,200Staff benefits expenses 2,450Supplies expenses 600Occupancy and other administrativeexpenses 3,250Total expenses $21,000Fixed expenses are the salary of the part-time cook and occupancy and other administrativeexpenses. The salary of the director is fixed—as a partnership, this is in reality a distribution ofprofits, 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 personfor benefit programs for instructors and the part-time cook. Variable supplies are $1 per studentper 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 byexpanding student enrollments. These alternatives are interrelated. Friedman thinks that classsizes 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 tiedto a reduction in class size. For children ages 2 to 5, most parents would support a 25 percenttuition increase, and nearly 50 percent would support a 50 percent increase. Of the 5-to-6 agegroup parents, nearly three fourths did not want any increase. The remainder said they wouldsupport 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 agegroups, 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 intouch with waiting-list parents to make certain each is still interested. This list provides childrenwhen someone leaves the center. The current waiting list is as follows:Agegroup Number of childrenAgegroup Number of children2 to 3 5 4 to 5 43 to 4 7 5 to 6 11Friedman does not start a new class unless more students are on the waiting list than are requiredper 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 fewerthan the requisite number, taking the chance that new students would appear and could be addedimmediately.Information from his various inquiries implies that a potential market for quality infant care (0 to24 months) exists. Friedman doesn't think this expansion would be profitable. However, he hasnever done an analysis of the situation and has not thought about an appropriate tuition. Hebelieves that the infant/instructor ratio in his center should be no higher than 5 infants to oneinstructor. 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 operateat or above the current profit level.Friedman does not start a new class unless more students are on the waiting list than are requiredper 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 fewerthan the requisite number, taking the chance that new students would appear and could be addedimmediately.Information from his various inquiries implies that a potential market for quality infant care (0 to24 months) exists. Friedman doesn't think this expansion would be profitable. However, he hasnever done an analysis of the situation and has not thought about an appropriate tuition. Hebelieves that the infant/instructor ratio in his center should be no higher than 5 infants to oneinstructor. 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 operateat or above the current profit level.Questions:1. Look at each decision separately, as incremental to the current situation, and evaluate themarginal profit:a. If class size is decreased (keeping the same 80 students), what increase in tuitionis necessary to keep the current monthly profit level?b. Without regard to (a), is it profitable to create the new class from the waiting list?Explain.c. Use the new fee structure as found in (a). Is it profitable to move to smaller classsizes, if new full classes are created and filled to their new maximums using thewaiting list? Show calculations.d. Is a class for infant care profitable if tuition is the same as the proposed classtuition for the 2-to-3 age group?2. Write a brief memo to Friedman and Compton highlighting any concerns that underlie the analyses you have performed in Part 1