12.28 Feasibility Report: Can Rainbow Precision Instruments

  12.28 Feasibility Report: Can Rainbow Precision Instruments Afford a Children’s Center? (Obj. 5)
Rainbow Precision Instruments (RPI) is a $60 million manufacturer of specialty gauges for the aerospace industry, mainly flight deck or
cockpit instruments, located in a small town in the Pacific  Northwest. To accommodate its workforce of approximately 55 percent female employees, the company has been operating a state-of-the art Children’s Center. More than a child care center, the facility is an award- winning and well-equipped learning center that covers two shifts, from 7:00 a.m. until 10:30 p.m.
Such innovation and extensive coverage are not cheap. A recent overhaul of the facility cost $150,000, and the annual budget  to instruct and care for 145 children reached $300,000. The Children’s Center provides a state-certified curriculum taught by professional preschool faculty. The children also receive their meals at the facility. At its inception, the costly investment seemed fully justified. However, the number of employee children started slowly dropping until fewer than 10 percent of enrollees were children of RPI workers. The company responded by opening the Center to surrounding communities, where quality day care is scarce. YEAR                                 2003                  2008                2010
Percent of employee                  55 percent           25 percent          10 percent children at the Center
Instead of raising the tuition to market levels to recoup some  of  its investment, RPI continues to subsidize the Center annually with
approximately $200,000, not differentiating between Rainbow employ- ees and parents from the local area. The annual tuition is $696 per child.
To make matters worse, RPI has suffered financial setbacks and is currently losing about $2.5 million annually. Finding alternatives for looking after the few remaining company children would seem less expensive than keeping the Center open. RPI has unsuccessfully pur- sued other options, such as selling the Children’s Center or finding an independent operator to run  it.
Your Task. From the available evidence, decide whether it is advisable for the company to close the Children’s Center or keep it open. If you choose to keep it open, you will need to argue for some substantial changes in company operations. In your memo report, announce the decision, describe the problem, and discuss both the advantages and disadvantages of your proposal. Last, focus on costs and the time frame needed to implement your  decision.