Question

A state government has an affiliated day-care center for kids. The center provides three different programs for infants, toddlers, and preschool kids. Tuition is charged weekly. The center runs at full capacity, which is 30 infants, 30 toddlers and 40 preschool kids. The center pays a monthly rent of $4,000 for the building they use. The center hires an executive director, a coordinator, an accountant, and a staff member working with maintenance and cleaning. Their annual salaries are $60,000, $50,000, $40,000, and $35,000. State laws require that student-to-teacher ratio should be 5:1 for infants, 6:1 for toddlers, and 10:1 for preschool kids. Each teacher gets an annual salary of $50,000. The expenses for daily activities per kid per day for the three programs are $10 (infant), $12 (toddler), and $15 (preschool kids). Electricity, depreciations, and other expenses run up to around $2,000 in total per month.

(1) Identify all the items of fixed costs and variable costs. (Assuming the size of program for infants, toddlers and preschool kids are fixed at 30, 30 and 40)

(2) The center decides to charge the same weekly tuition for each kid in all the three programs (infants, toddlers, and preschool kids). Calculate the break-even price per kid per week.

(3) If state employees get a 10% discount on the tuition, and the center estimates that 90% of the kids come from families of state employees, what is the full tuition price per week at break-even? (Hint: calculate the weighted break-even price for both state employees and non-state employees).

Answer 1

1. Items of Fixed Cost -

Building = $4000 per annum

Executive Director salary = $60,000 per annum

Coordinator salary = $50,000 per annum

Accountant salary = $40,000 per annum

Staff Member = $35,000 per annum

Electricity, Depreciation and Other expenses = $24,000 per annum

Items of Variable Cost -

Teacher's Salary which should be calculated as per the student-to-teacher ratio

Expenses for daily activities per kid per day - Infant = $10 per day per kid

Toddler = $12 per day per kid

Pre-school kids = $15 per day per kid

2. Break even price for Infant per week =  

Expenses For 30 Infant Kids	Per Annum (In $)	Per Week (In $)
Building	4000	76.92307692
Coordinator Salary	50,000	961.5384615
Executive Director Salary	60,000	1153.846154
Accountant Salary	40,000	769.2307692
Staff Member	35,000	673.0769231
Teacher (as per student teacher ratio - for 6 teachers)	300000	5769.230769
Infant expense	109500	2105.769231
Electricity, Depreciation and other expenses	24,000	461.5384615
Total Expenses for 30 Kids		11971.15385

Break-even price per Infant kid per week = 11971.15 / 30

= $ 399.03

Break even price for Toddler per week =

Expenses For 30 Toddler Kids	Per Annum (In $)	Per Week (In $)
Building	4000	76.92307692
Coordinator Salary	50,000	961.5384615
Executive Director Salary	60,000	1153.846154
Accountant Salary	40,000	769.2307692
Staff Member	35,000	673.0769231
Teacher (as per student teacher ratio - for 6 teachers)	250000	4807.692308
Infant expense	131400	2526.923077
Electricity, Depreciation and other expenses	24,000	461.5384615
Total Expenses for 30 Kids		11430.76923

Break-even price per Toddler kid per week = 11430.76/30

= $ 381.02.

Break even price for Pre school kid per week =

Expenses For 30 Pre school Kids	Per Annum (In $)	Per Week (In $)
Building	4000	76.92307692
Coordinator Salary	50,000	961.5384615
Executive Director Salary	60,000	1153.846154
Accountant Salary	40,000	769.2307692
Staff Member	35,000	673.0769231
Teacher (as per student teacher ratio - for 6 teachers)	200000	3846.153846
Infant expense	219000	4211.538462
Electricity, Depreciation and other expenses	24,000	461.5384615
Total Expenses for 30 Kids		12153.84615

Break-even price per Pre School Kid per week = 12153.84 / 40  

= $ 405.12