Justin Murphy opened Justin's Corner, a small day care facility, just over 2 years ago. After a rocky start, Justin's Corner has been thriving. Murphy is now preparing a budget for November 20X7. Monthly fixed costs and other data for Justin's Corner are as follows:

Rent . $600

Salaries . 1,700

Other fixed costs . 130

Total fixed costs . $2,430

The salary is for Joan Morris, the only employee, who works with Murphy by caring for the children. Murphy does not pay himself a salary, but he receives the excess of revenues over costs each month. The cost driver for variable costs is"child-days." One child-day is one day in day care for one child, and the variable cost is $3 per child-day. The facility is open from 6:00 AM to 6:00 PM weekdays(that is, Monday long dashFriday), and there are 21 weekdays in November 20X7. An average day has 13 children attending Justin's Corner. State law prohibits Justin's Corner from having more than 20 children, a limit it has never reached. Murphy charges $30 per day per child, regardless of how long the child is at the facility.

Requirement 1. What is the break-even point for November in child-days? In revenue dollars?

Begin by determining the formula, and then enter the amounts to calculate the break-even point in child-days (units).

/

=

Break-even in child-days

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=

Next, determine the formula and then enter the amounts to calculate the break-even point in revenue

dollars.

	x		=	Break-even in revenue dollars
	x		=

Requirement 2. Suppose attendance for November 20X7 is equal to the average, resulting in 21 x 13 = 273 child-days. What amount will Murphy have left after paying all expenses?

Determine the formula and then enter the amounts to calculate Murphy's net income if attendance was 273

child-days.

[

x (

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) ] -

=

Net income

[

x (

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) ] -

=

Requirement 3. Suppose both costs and attendance are difficult to predict. Compute the amount Murphy will have left after paying all expenses for each of the following situations. Consider each case independently.

a. Average attendance is 14 children per day instead of 13, generating 294 child-days.

Net income would be_____

b. Variable costs increase to $9 per child-day.

Net income would be_______

c. Rent increases by $230 per month.

Net income would be_________

d. Murphy spends $500 on advertising (a fixed cost) in November, which increases average daily attendance to 17 children.

Net income would be_____________

e. Murphy begins charging $40 per day on November 1, and average daily attendance slips to 12 children.

Net income would be_________