Mia and Kassem are starting a childcare business called Babbu, next to their home. Babbu is licensed by the state for an annual fee of $600. Insurance is required at a cost of $3,840 annually. The facility is licensed to care for a maximum of six children.

Babbu charges a fee of $900 per month for each child. The monthly fee is based on a full day of care, from 8:00 a.m. to 4:00 p.m. If additional time is required beyond 4:00 p.m., parents must pay an additional charge of $25 per hour for each child.

The couple provides two meals and a snack for the children. The cost of the meals and snack is $3.20 per child per day. There are six children currently enrolled. The facility is very nice. It is 820 square feet and decorated beautifully. Mia and Kassem added the annex to their house for a cost of $79,500 and they believe the addition has a useful life of 25 years. The facility has a large open space for play, reading, and other activities. There is a section for sleeping which contains small cots. The facility is equipped with a small kitchen, two bathrooms and a small laundry area. Babbu’s utility costs are $50 each month. During the first week of operations, the washer and dryer stopped working. Both appliances were old and had been used for many years. The old appliances cost a total of $440. While a laundry room was not initially a necessity, it became increasingly important for laundering the soiled clothes of the children, blankets, and sheets. A company nearby, Red Oak Laundry and Dry Cleaning, can launder clothing for the Babbu, including pick-up and delivery, for $52 per month. Alternatively, Mia and Kassemcan purchase a washer and dryer. The cost of the washer is $520 and the dryer is $450. The additional accessories for both appliances, needed for installation, cost $43.72. The vendor will deliver the appliances at a total cost of $35. Both appliances are expected to last 8 years. According to the manufacturer the washer will save energy costs by $120 per year while the dryer will increase energy costs by $80 per year. Mia and Kassem need some assistance in decision making and evaluation. They have contacted Shiyu, their accountant, to provide some advice.

QUESTIONS: 

Mia and Kassem home can accommodate a maximum of nine children. They can move the daycare from their home to rented space in town, which can accommodate up to 14 children. The space will cost $850 per month and the utilities will cost $125 per month. Additionally, insurance will now cost Mia and Kassem $5,000 per year. Per state regulations, each adult can supervise no more than three children. As Shiyu, prepare a letter to Mia and Kassem advising them on their space options. Should they continue to operate the facility at home, or should they rent space in town? How many children should they accept? How many employees will they need to hire? Show your detailed calculations for each scenario.

Answer rating: 100% (QA)

Dear Mia and Kassem Thank you for contacting me for advice on your space options for your childcare ... View the full answer