Running head: BUS 630 WEEK 5 ASSIGNMENT 1

BUS 630 Week 5 Assignment

Name
Ashford University
Managerial Accounting
BUS 630
Dr. Barrett
May 5, 2013
BUS 630 WEEK 5 ASSIGNMENT 2

BUS 630 Week 5 Assignment

TO: Mr. Bill Compton, Owner
Mr. George Friedman, Owner, Director
FROM: __________,Accounting Department
DATE: May 6, 2013
SUBJECT: Analysis of Suggested Changes to Operations
In response to your request for an analysis of your suggested changes to the operations, class
size, and tuition fees an analysis has been performed of the profitability of these changes in four
areas

1. The decrease of the number of students per class, maintaining current profit levels
2. What is the profitability of creating a new classes from the waiting list?
3. Is it profitable with the new tuition rates to go to smaller classes if the new classes
are created and filled using the waiting list?
4. Is opening an infant care class profitable?

BACKGROUND DATA:
Presently there are six classes with a total of 80 students. The students are broken into age
groups of 2 to 3 years, 3 to 4 years, 4 to 5 years, and 5 to 6 years. There are 20 students in the 2
to 3 your group, 15 in the 3 to 4 year group, 15 in the 4 to 5 year group, and 30 in the five to six
year group for a total of 80 students
BREAKDOUN OF THE FOUR ANALYSIS QUESTIONS

. To calculate customer profitability you must match revenues and expenses on a line-by-line
basis (Miller, 1999, p. 2).Decreasing the number of students per class to your desired levels and
maintaining the current profit levels would require the following increases:
1. The 2 to 3 year group would require a 61% raise in tuition which is a $196
increase.
2. The 3 to 4 year group would require a 47% raise in tuition which is a $131
increase.
3. The 4 to 5 year group would require a 47% raise in tuition which is also a $131
increase.
4. The 5 to 6 year group would require a 25% raise in tuition which is a $65
increase.
See answer a in the attachment.
Profitability of creating a new class from the waiting list. Customer profitability varies greatly in
general the most profitable twenty percent of customers generate the company's profit while the
remaining eighty percent lose most of it(Kuchta, Dorota, Troska, & Michal, 2007, p. 1). This is
true in this case. The computation and analysis of revenues and expenses for creating the new
classes, with the class sizes desired indicates that it is only beneficial to start a new class for the
BUS 630 WEEK 5 ASSIGNMENT 3

age group of 5 to 6 as it is the only profitable option. All other options are not feasible until the
required level of students are available and show a negative revenue at this time.
See answer b of the attachment.

The profitability of going to smaller classes and raising the tuition rates is not feasible because,
the required incremental revenue rates that are required to maintain the present profit level is not
met.
See answer c of the attachment.

Opening an infant care class with 5 infants is a profitable solution. The expected revenue would
be $2,580 and expenses would be $1965 for a net income of $615.
See answer d of the attachment.

SUMMARY:
The development of another 5 to 6 year group class would be profitable for the company.
Additionally, the development of the infant class would return a profit. The other suggestions all
have negative revenue results. I suggest developing the infant class and the 5 to 6 class at this
time. In the future I suggest an increased marketing campaign and developing a brand name in
order to increase customer satisfaction and willingness to accept higher tuition rates. Building
a brand and customer experience allows a company to command significant price premiums over
its competitors and resist the sort of discounting that can erode margins and profitability
(Raynor, 2013, p. 66). Growth and profitability must be planned and built block by block.
Starting with the increased marketing and the two new classes would be a good building block in
my opinion. Growth doesn't happen just because you want to grow. It happens only when you
know how to grow and are willing to invest in that growth. You absolutely must have a plan and
be willing to invest in it or you're dead in the water (Sitkens, 2012, p. 28).

If you have any questions I would be happy to converse with you this subject at any time.

Attachments: Spread sheet showing all calculations.

.
BUS 630 WEEK 5 ASSIGNMENT 4

References
Kuchta, Dorota, Troska, & Michal (2007). Activity-Based Costing and Customer Profitability.
Cost Management, 21(3). Retrieved from http://search.proquest.com.proxy-
library.ashford.edu/docview/209698659?accountid=32521
Miller, R. (1999). The Profitability of One. Banking Strategies, 75(4). Retrieved from
http://search.proquest.com.proxy-
library.ashford.edu/docview/204162802?accountid=32521
Raynor, M. (2013). Playing the Odds. The Conference Board Review, 50(1), 66-70. Retrieved
from
Sitkens, R. (2012). Whats Your Growth Plan and Budget. Rough Notes, 155(7), 26-29.
Retrieved from http://search.proquest.com.proxy-
library.ashford.edu/docview/1024425038?accountid=32521