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 .
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 two to three single-spaced pages of content.
Provide at least four scholarly sources, excluding the textbook.
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:
Number of classes
Children per class
Total children
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 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 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.
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:
1. Look at each decision separately, as incremental to the current situation, and evaluate the
marginal profit:
a. If class size is decreased (keeping the same 80 students), what increase in tuition
is 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 class
sizes, if new full classes are created and filled to their new maximums using the
waiting list? Show calculations.
d. Is a class for infant care profitable if tuition is the same as the proposed class
tuition 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.
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