House
Middlehurst House is
a day
care
center
/preschool
which
operate
s
as
a partnership
of
George
Friedman
an
d
Bill
Compton
.
The
center is in
a city
that
has
a large
base
of two
income families
who
have
a need
for
quality
day care.
The two men
start
ed
the
center this
year.
Compton contributed
$40,000
to
get
the business
started—to
purchase
equipment and
to operate
through
the early
month
s.
Friedman,
who previously
managed
another center,
is the director
of the center and draws
$2,000
per
month for his
service
s.
Partnership profit
s
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
class
es
,
all
at
maximum
size
s
,
structured
as follows:
Number of classes
Children per classTotal childrenMonthly tuition
per child2 to 3 21020$3203 to 4 115152804 to 5 115152805 to 6 21530260
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
$ 9,600Salary of director2,000Salary of part-time
cook
900Food
expenses
2,200Staff benefit
s
expenses2,450Supplies expenses600Occupancy and other
administrative expenses3,250Total 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 want
s
to increase
the quality of service by decreasing
class sizes and also
by expanding
student enrollments.
These
alternatives
are interrelated.
Friedman think
s that
class sizes are too
large and that children are no
t
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 age
s
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 groupNumber of childrenAge groupNumber of children2 to 354 to 543 to 475 to 611
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:
