DAY CARE IN PUBLIC HOUSING
Assignment: Dan Schaefer, executive director of the Petersburg, Va., office of the
Volunteers of America (VOA), is eager for the board of directors to approve his plan to
open a day-care center in the Alta Vista housing community. Mr. Schaefer believes this
proposal is an ideal way to begin to rebuild Alta Vista. The Petersburg VOA helped to
establish this community in 1971; unfortunately, the residents have seen a rise in criminal
activity and a decrease in their quality of life. Although the board approves Mr.
Schaefer’s proposal at the end of the case, assume instead that he has hired you to analyze
the proposal in preparation for the board meeting. Specifically, Mr. Schaefer wants you to
do the following:
1. Prepare a cost-volume-profit (CVP) analysis of the proposal’s financial
implications. Specifically, prepare an analysis that includes the projected revenue,
variable costs, and fixed costs for enrollment levels of 20, 25, 30 and 37 students
using the monthly projections in Attachment A of the case.
2. Then, compute the weighted average contribution margin (CM) per student
(computed as the total CM divided by the number of students enrolled) and the
number of students that need to enroll at each of the four levels of enrollment for
the center to break even. For this analysis, I have provided an Excel template in
which I have already sorted variable and fixed costs; I have included the raw data.
However, I have not included the formulas.
Prepare a memorandum for Mr. Schaefer that includes: o the benefits and challenges
of the Alta Vista day-care center project o an interpretation of the results of your CVP
analysis o recommendations for Mr. Schaefer about what he should consider and/or
do before the board meeting. The following questions should guide you in the
identification of important case issues.
1) What does the Petersburg office hope to achieve by opening the Alta Vista daycare center? In other words, what type of program has Mr. Schaefer planned, and
why does he think it would benefit both the Petersburg office and Alta Vista?
2) What challenges does the company face in opening the day-care center? Where do
the uncertainties lie? How could these individuals or organizations mitigate the
challenges and uncertainties that you identify?
3) How would you describe the cost structure of the Alta Vista day-care center? In
other words, what costs from Attachment A can be managed; can the center avoid
any of the variable or fixed costs? What costs are missing from Attachment A, if
any?
4) What is the break-even number of students needed to enroll without the
administrative fee to the VOA office? Should the office charge this fee to the daycare center in the short term? In the long term? Is charging the fee consistent with
the VOA’s mission?
5) If the Alta Vista day-care center opens based on Mr. Schaefer’s current plan, do
you predict that it will succeed or fail?
Requirements, when making recommendations to Mr. Schaefer, be sure to provide
enough explanation so that he can make an informed decision. Your recommendations to
Mr. Schaefer should be no longer than three pages (single-spaced, font size 12 Microsoft
Office document) excluding the CVP analysis. Besides a short introductory paragraph
describing the purpose of the memorandum, suggested headers are:
Project benefits
Project challenges and uncertainties
CVP analyses and assessment
Recommendations
