HBSP Product Number TCG 205.

Rev: 5Apr13

THE CRIMSON PRESS CURRICULUM CENTER

THE CRIMSON GROUP, INC.
Abbington Youth Center
Mark Thomas, a recently graduated M.B.A., had been hired three months ago as assistant director of the Abbington Youth Center. Prior to earning his M.B.A., he had worked in several manufacturing firms, but he had never worked in a nonprofit organization. He knew little about Abbington's
programs or the educational and social theories in use by the professional staff, but had decided to
take the job since he had been impressed with the Center's attempts to provide high-quality programs for the children in his community.
Despite his lack of experience in organizations like Abbington, Mr. Thomas had brought some
much-needed management skills to the centers operations. In his short tenure he not only had introduced some new management techniques, but had regularly made attempts to educate the professional staff in the use of those techniques.
This afternoon's staff meeting was no exception. In attendance would be the center's director,
Helen Fineberg, and the coordinators of the center's three programs: Fiona Mosteller (Infants and
Toddlers Program), Joanne Olivo (Preschool Program), and Don Harris (After-School Program).
As the names suggested, each program was aimed toward a different age-group: the first accepted
children up to the age of three; the second from three to five years of age; and the third from five to
seven years.
Mr. Thomas planned to instruct the program directors in the concept of breakeven analysis; in
order to do so, he had gathered some data on the revenues and costs of the three programs (see Exhibit 1). Using this information, he determined that each student contributed $4,348 to fixed costs
after covering his or her variable costs. Given the fixed costs of $498,700 ($328,000 in the programs and $170,700 for the center overall), he had calculated that 115 students were needed to
break even.
He had prepared the breakeven chart, shown in Exhibit 2, which he planned to distribute to everyone at the meeting prior to giving a short lecture on the concept of breakeven analysis. His intent
was to make clear to everyone that enrollment was exactly at breakeven, which did not allow any
margin of safety, and to encourage the program directors to expand the size of their programs by a
few students each so as to provide a more comfortable margin and, if all went well, a substantial
surplus for the center.
The Meeting
At the meeting, several issues arose that Mr. Thomas had not anticipated, and a rather hostile atmosphere developed. Ms. Mosteller pointed out that 50 students was the maximum her program
could accommodate, given current classroom space, and wondered exactly how Mr. Thomas expected her to increase the program's size. Ms. Olivo said she would be happy to expand her program by another 10 students, but in order to do so, she would need to hire another teacher, at a cost
of $22,000. She wondered how Mr. Thomas might include this fact in his analysis, and, under the
circumstances, whether the teacher should be considered a fixed or a variable cost. Mr. Harris told
Mr. Thomas that he had been planning all along to add another 15 students to his program, and
wondered why Mr. Thomas had not checked with him about this prior to preparing the figures and
the chart. He too would need to hire another teacher, however, at a cost of $25,000, and also wondered whether this was a fixed or variable cost.
Ms. Fineberg seemed quite perplexed by the discussion, and began her comments by asking
Mr. Thomas why he was using averages when the Center had three separate programs. She also indicated that $1,350 was far too low a surplus, since she was hoping to have some extra money
available during the year for painting and some minor renovations, which would cost about
$10,000. She asked Mr. Thomas how he might incorporate this need into his analysis. She also
_____________________________________________________________________________________________
This case was prepared by Professor David W. Young. It is intended as a basis for class discussion and not to illustrate either effective or ineffective handling of an administrative situation.
Copyright 2012 by The Crimson Group, Inc. To order copies or request permission to reproduce this document,
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expressed some concern about Mr. Thomas's per-student fees, stating that in talking with people in
other centers she had learned that Abbington's fees were about 10 percent below what others were
charging. She thought an across-the-board increase to make up the difference was called for.
Finally, all three program directors queried Mr. Thomas about his variable-cost-per-student figure. They asked him how he had derived these figures and whether they included some recent price
increases of about 5 percent in educational supplies. Mr. Thomas stated that they included both
supplies and food, divided about 75 percent/25 percent between the two, but he confessed that he
had not included any price increase in his calculations.
Next Steps
The meeting ended on a less-than-happy note. Mr. Thomas had not had an opportunity to give
his lecture, the program managers felt frustrated that their concerns and plans had not been included
in his analysis, and Ms. Fineberg was quite upset because it appeared as though the center would
not have the funds necessary to pay for the much-needed painting and renovations.
Mr. Thomas returned to his office and wondered whether his decision to work at the center had
been a wise one. Perhaps, he thought, life would be simpler in a manufacturing firm.
Assignment
1.
2.
3.

4.

What assumptions are implicit in Mr. Thomas's determination of a breakeven point?

Using the data in Exhibit 1, calculate a breakeven point for each of the three programs?
On the basis of the suggestions and comments made at the meeting, and making assumptions where necessary,
prepare revisions to Exhibit 1. What is the new breakeven volume for the Center? What is it for each of the
three programs?
Based on the information in Exhibit 1, Ms. Fineberg is considering eliminating the After School Program.
What advice would you give her?

Abbington Youth Center

Exhibit 1. Program Cost Analysis, Normal Year (1)

Students at full capacity

Actual number of students
Fee per student
Total revenue
Variable cost per student
Total variable cost
Contribution to program fixed costs
Less: Program fixed costs
Contribution to allocated fixed costs
Less: Allocated fixed costs (2)
Surplus (deficit)

Infants and
Toddlers

Preschool

AfterSchool

50
$ 4,520
226,000
480
24,000
$202,000
130,000
$ 72,000
42,675
$ 29,325

40
$ 5,320
212,800
1,040
41,600
$171,200
118,000
$ 53,200
51,210
$ 1,990

25
$ 5,970
149,250
896
22,400
$126,850
80,000
$ 46,850
76,815
($29,965)

Aggregate
150
115
$ 5,113
588,050
765
88,000
$ 500,050
328,000
$ 172,050
170,700
$ 1,350

Notes:
1. All figures rounded to the nearest dollar.
2. Allocated on the basis of square feet

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Abbington Youth Center June 2012
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Abbington Youth Center

Exhibit 2. Breakeven Chart--All Programs

$000

Total revenue

900 Total costs

800 700 600 500 -

Fixed costs

400 Variable costs

300 200 100 50

100

150
200
250
Number of students

300

350

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Abbington Youth Center June 2012
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