MIDDLEHURST HOUSE 2
Middlehurst House
MEMORANDUM.
FROM
TO: Friedman
CC: Compton
DATE
SUBJECT: school expansion
In response to your request for analysis on matters of class sizes, profitability and tuition fee changes on the rate of return.
This memo presents a valuable analysis of data recorded during the month of October. The analysis is aimed at analyzing economic viability linked with school expansion plans. The memo presents an analysis of different scenarios which have different implications for the profit levels of the organization (Britto et al. 2017). the analyses which were done first dealt with a scenario expected if the sizes of the classes are reduced to smaller classes. The situation will lead to ch creation of more groups which will require more tutors to handle.
Hiring more tutors will lead to an increase in the operating expenses of the school leading to less profit realization (Gandy,2015). To counter this financial challenge the school would increase the tuition fee per student to ensure that the costs are covered. The first analysis, however, presents a case where the increase in the operation cost is matched with the revenue change to ensure that the profit margin is retained. The proposed care quality improvement will lead to more resources directed towards employment of tutors to match the proposed ratios.
The second analysis is based on creating more classes to cater to the potential market. The analysis asserts that the idea is not economically feasible as the expenses are more than the revenue generated. The organization therefore under the approach will operate at a loss. from the analysis, the increase in the number of classes increases both the salary and the benefits accrued leading to the idea being unfeasible.
The memo analysis the potential return on investment when the classes were expanded using the current potential market comprising of the student in the waiting list (Zoritch, Robert, & Oakley,2016). The analysis indicates that the approach is feasible and attracts a better profit margin. The expansion will lead to an increase in the rate of tuition fee paid per student. The parents have shown interest in catering for more tutors to ensure the quality of care offered improves (Thorpe, Irvine, Pattinson, & Staton, 2018). The analysis based on the majority of the students (Age 2-5) shows the willingness of the parent to adjust the payment up to about 50% of the initial payment.
The memo also presents the aspect of exploitation of a potential market which hasn’t been tackled currently. Based on market research undertaken the investment is feasible to the nature of their mother’s lifestyles. The memo proposes considerations for the highlighted expansion options
References
Britto, P. R., Lye, S. J., Proulx, K., Yousafzai, A. K., Matthews, S. G., Vaivada, T., … & MacMillan, H. (2017). Nurturing care: promoting early childhood development. The Lancet, 389(10064), 91-102.
Gandy, D. L. (2015). Small business strategies for company profitability and sustainability.
Thorpe, K., Irvine, S., Pattinson, C., & Staton, S. (2018). Insider perspectives: the ‘tricky business’ of providing for children’s sleep and rest needs in the context of early childhood education and care. Early Years, 1-16.
Zoritch, B., Roberts, I., & Oakley, A. (2016). Withdrawn: Day care for pre-school children. The Cochrane database of systematic reviews, 10, CD000564-CD000564.
Appendix
Calculations and explanations
Q1
The decrease in class sizes will lead to increase in the number of tutors required to tackle the classes. The proposed teacher to student ratio will lead to more tutors hired. Based on the directions to new class sizes the number of tutors will increase from 6 currently to 10 escalating the total expenses. The new expenses will be as follows;
Current number of tutors =9600/1600=6
Benefits per tutor= 160+200
=$360
Current expenses + additional tutor fee+ benefits
=$ 21,000+ (4*1600) = 27400+360
=$ 27,760
Current profit level= $21,500-21,000= 500
New tuition totals= 27760+500
=28260-21500=6400
The tuition fee needs to be increased with a total of $6760 to retain the original profit. The analysis assumes that all other factors remain constant during the period of analysis.
b)
possible returns from the new classes:
Particulars
Expenses
Tutors
Expenses
Additional revenue
Age 2-3
5
1
1960
1600
Age 3-4
7
1
1960
1960
Age 4-5
4
1
1960
1120
Age 5-6
11
1
1960
2860
Total expenses=7840
Revenues = 7540
Loss = 300 dollars
The idea of creating new class for the waiting list is not economically feasible. The idea will entail creation of four different classes which will require more tutor and thus leading to more expenses and a low profit margin.
c)
with the creation of new classes new tutors will be hired to match the tutor student ratios proposed. On the other hand, increases in tuition fee will be affected as illustrated below. Based on the proposed ration the total number of tutors for the new classes 12
Current student number Tutors current tuition fee
Age 2-3 25 3 (50% of 320) +320
$480
Age 3-4 22 3 50% of 280
$420
Age 4-5 19 2 50% of 280
$420
Age 5-6 41 4 260
Total projected income= ((25*480+22*420+19*420+41*260))
=$ 39880
New expenses = $ 21000+(6*1600) = 30600
Profit realized =39880-30600
= $8280.
The classes expansion will lead to a larger profit margin due to the increase in tuition fee per student. The expansion idea therefore is economically viable. 50% increase has been used in analysis since majority of the parent agree to a tuition fee increase of the same percentage.
d)
estimation for the potential market cannot be justified since the October data set doesn’t provide any related data. However, the market research undertaken asserts that there exists an untapped potential market which the school can invest in and exploit effectively.