What assumptions are implicit in Mr. Thomas’s determination of a breakeven point?
From the case, it seemed like Mr. Thomas’s breakeven point calculation was based on the average of the three programs, instead of calculating the breakeven point individually. 1. Using the data in Exhibit 1, calculate a breakeven point for each of the three programs?
Using the breakeven point formula (Xbep = FC/(P-VC)), we have the results for each program: * Infants and Toddlers: (130000 + 42675)/(4520 – 480) = 43 students * Preschool: XBEP: (118000 + 51210)/(5320 – 1040) = 40 students * After-School: XBEP: (80000 + 76815)/(5970 – 896) = 31 students 2. On the basis of the suggestions and comments made at the meeting, and making assumptions where necessary prepare revisions of Exhibit 1. What is the new breakeven volume for the center? What is it for each of the three program?
After my calculation of breakeven point individually, for Infants and Toddlers group, I would recommend to remain the number of students since the current number were already more than the new breakeven point (50>43). Same as for Preschool group, I would recommend to remain the current student number since it also met the breakeven point. There’s no need to add additional cost. For After-School, current number of students were not enough to meet the new breakeven point (31>25). However, if After-School added 15 more student as Mr. Harris planned, it would meet the new breakeven point and would increase the profit. 3. Based on the information in Exhibit 1, Ms. Fineberg is considering eliminating the After School Program. What advice would you give her?
I would say, Ms. Fineberg should keep the After-School if 15 students were added as