A neighbor asked for your help preparing a grant for a not-for-profit after-school art program that would benefit elementary school children in the neighborhood. He wants to charge low fees for most children, but also offer some scholarships for low-income children. He needs to have one staff person for every six children to meet state regulations. He can use high school student volunteers for two of these positions, but is concerned about potential absences on their part if he relies on them for the state count. He would like the program to serve at least 30 children, and more, if possible. He wants you to help him decide on the fees to charge and also to determine how many students could receive scholarships.
A. Think about the costs involved in an after-school art program. Assume that your neighbor can use space in the local elementary school for free.
1. List costs that will be incurred for the program, and categorize them as fixed, variable, or mixed.
2. For each variable cost, choose a potential cost driver. Explain your choice. B. Do you think the cost structure would be primarily fixed or primarily variable? Explain.
Remember, even though staff works only part time, they will have a regular schedule to meet the state regulations of six children per staff member.
C. Suppose one of the staff members has only one child to help. What is the marginal cost for three scholarships?
D. Suppose the program is fully subscribed by fee-paying children. What is the opportunity cost per scholarship?
E. Will CVP analysis helps your neighbor choose a fee that would cover at least 10 scholar-ships? Explain how you would set up a spreadsheet so that your neighbor could perform sensitivity analysis to make more informed decisions.