Kelly has decided to set up a childcare centre in her rapidly growing outer suburb. She

Question:

Kelly has decided to set up a childcare centre in her rapidly growing outer suburb.
• She estimates that the cost of looking after each child (milk, food, nappies, etc.) would come to $300 per month per child.
• There would also be the cost of the premises she would rent at $4000 per month, rent of furniture, toys and other equipment at $200 per month, the salaries of two childcare assistants at $700 each per week and other fixed expenses of $1600 per month.
She decides to charge parents $250 per child, per week, for a full-time place.
Required:
a) Calculate the per child, per month. (Assume there are 4 weeks in a month).
b) Calculate the total fixed costs per month.
c) How many children would Sara have to enrol in order for the centre to breakeven?
d) In order to make a profit of $5000 a month, how many children must be enrolled?
Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...