Homework Post
Jul. 8th, 2012 11:16 amPost question:
The Teddy Bear Child Care Company operates a day-care facility. The variable cost of operations is $200 per child permonth. The fixed Costs amount to $3,200 per month. Teddy Bear charges $600 per child per month for theirservices. Although the Teddy Bear Company has the capacity to handle 32 children; the current number of childrenserved is only 10.
Post Title: Can Child Care = Profit?
To one's sanity: no, but that is irrelevant.
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Variable Costs = $200 per child (costs increase $200 for each child)
Fixed Costs = $3200 per month
Selling Price = $600 per child per month
# of Products (Children) = 10
Use the Breakeven Analylsis equation first to see if the comapny is even making a profit.
Sales Revenue - Variable Costs - Fixed Costs = Operating Income
$6000 - $2000 - $3200 = $800
$800 profit on 10 students. Neat, but $800 per month could hardly pay the manager's personal, non-business bills in any state.
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What happens if the parents of 2 students don't like what's going on at Teddy Bear Child Care Company, remove their children , and enroll them at rival Teddy Ruxpin Kiddie Kare?
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Variable Costs = $200 per child (costs increase $200 for each child)
Fixed Costs = $3200 per month
Selling Price = $600 per child per month
# of Products (Children) = 8
$4800 - $1600 - $3200 = 0
8 students is the Breakeven point. The point at which there is no Net Income or Net Loss.
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Fortunately for Manager, she thinks she can double the number of current students by spending only $500 per month on advertising.
To calculate an increase the profit, an extra $500 in fixed costs is spent.
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Variable Costs = $200 per child (costs increase $200 for each child)
Fixed Costs = $3700 per month
Selling Price = $600 per child per month
# of Products (Children) = 20
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$12000 - $4000 - $3700 = $4300
$4300 profit on 20 students. That's a $3500 profit increase with only a $500 expense increase.
Much better profit and a good investment for only an extra $500 per month.