Luther Burbank School District Case

Luther Burbank School District

Case Analysis and Alternatives

This is a complex problem, as many of the factors that are essential to the analysis are missing. First, it is not known the root cause of the failure of Mariott Services in provision of nutritional breakfasts. There are options for funding the program. However, the board must make certain that their money is well spent and that the program does not continue to suffer. This research will explore three potential alternatives to keep the school breakfast program open at LBMS.

Calculating Total Revenues and Expenditures

LBMS has 1,050 students who receive breakfast, snack and lunch. Of the 12,000 total students in the district, 42% are eligible for free or reduced school lunches. That means that 4,800 are eligible for free or reduced school lunches, the Federal Government provides cash subsidies to school that participate in the school breakfast program. It is not known how many students receive full price and how many receive reduced lunches. Therefore, the best-case scenario represents the hypothetical scenario where all of the students receive free breakfasts. The worst-case scenario assumes that all students receive reduced price lunches. In reality, the actual number of funds lost from the School Breakfast Program ranges from $5,280 - $6,720. These numbers may be higher, as LBMS qualifies as a severe need school and is reimbursed at an even higher rate.

The following assumptions will be used in the determination of costs associated with provision of the school breakfast program. The students pay $2.25 for a full price meal and $1.00 for breakfast (LBUSD, 2008). Considering the total population of the school district, this represents potential total revenues from sales of lunch and breakfast of $39,000 per day. The minimum number of days in a school year is 180 (LBISD, 2008). The represents a total potential gross revenue of $7,020,000.

It is not known now many students are on the free lunch program and how many are on reduced lunches. This information is private and is not available publicly. For the purposes of estimation, let us assume that all are free lunches. This represents a worst-case scenario in terms of losses of revenue. If 4,800 students receive free lunches and breakfasts, that represent a loss of $2,808,000 per year, had these students paid full price for lunch and breakfast. However, this is offset by subsidies of a minimum of $6,720 if all of students receive free lunches. This leaves a total operating budget of $4,218,720. This assumes that every student will eat lunch and breakfast given the opportunity.

The next task is to estimate costs of providing school lunches and breakfasts. Exact figures for Luther Burbank United School District were not available. According to commodity watch, the average cost of preparing and serving a school lunch is $2.90 per student (Amonline.com, 2008). This means a total expenditure per year of $6,264,000, based on feeding 12,000 students lunch every day. This number includes salary, food costs, maintenance and operating expenses such as power and water.

It might be noted that costs have increased ten percent, on average, from last year (Amonline.com, 2008). Federal reimbursement and donated food accounts for the differences in expenditure vs. The price charged to students. The average cost of serving breakfast in 84% of the schools participating in the program are able to do so at or below the cost of the federal reimbursement rate (Leconte, n, d.). Therefore, these profits or losses will be considered negligible for the purposes of this calculation. If the total operating budget for the cafeteria is $4,218,720 and the average costs of providing these meals is $6,264,000, this leaves a net loss of (-2,045,280).

Alternative #1 - All Inclusive Program that provides school lunches for the entire school population would have a total revenue of $4,218,720, assuming every child eats breakfast and lunch every day of the year. The costs of providing these lunches are $6,264,000. In this scenario, revenues reflect students who will not pay for lunch within the school district. However, the school must still provide meals for all of the students. The profit per year under these conditions is (-2,045,280).

In a previous statement is found that the costs for providing school breakfasts are at or below federal reimbursement costs. However, another source placed the average cost of providing school breakfasts, including labor, food, equipment and services at an average of $1.17 per student (Hilleren, 2007). The average cost of providing snack is approximately $1.08 per student. Under these circumstances, the costs for providing school breakfasts and snacks for all students would be $2,527,200 for breakfast and $2,332,800, including deductions for those that receive free school breakfasts. At this point, expenditures for providing breakfasts and snacks, including stands at $4,853,280. This represents a total loss for all three meals of (-$6,898,560).

In order to accommodate these losses price increase for the student body would have to be instituted, in order to break even this would mean a daily increase of $5.32 per day per students, spread across all of the meals. Only the 7,200 paying students would experience this increase. However, this brings another element into the analysis, it is not known how much price elasticity exists in the school breakfast program (Cebrzynski, 2008). The case study already indicated that sales of school lunches and breakfasts have dropped under Mariott Services. However, it is not known the reason of the drop, These drops in revenue may be price related, or they may be quality related. Insufficient information was provided in the case study to make this determination.

Alternative #2 - Free Lunch Only Program

The second alternative to providing lunch and breakfast for the entire student population is to provide school breakfasts for only those that receive free and reduced school lunches. We have already discussed the statistic that indicates that school lunches are often provided at or below the cost of federal reimbursement. Therefore, the only budgetary factor would be providing lunch, which is not in question. Price elasticity is not a question in this scenario, as the cost to the student in always free.

However, if one applies the same expenditures found in Alternative #1, expenditures for providing meals to only the free lunch students would total $1,944,000 for breakfast and snack. Revenues from reimbursements are $6,720. Other than revenues from government reimbursements, there is no offset to this cost. This means a total loss of (-1,937,280). If prices for the remainder of the student are increased to make up the deficit, it would amount to an increase of $1.46 over the course of the day per student.

In this scenario, price elasticity may play a role in the total budget.

Recommendations

These two scenarios represent viable alternatives to cutting the school breakfast program at LBMS. The costs for providing free breakfasts and breaks to the entire student population would be an increase of $5.32 per day per student to break even. This will result in over $100 per month per student for those that do not qualify for free lunches. For families that have multiple students in the school system, this could represent a considerable burden. Under these conditions, many students may resort to cost-savings such as bringing their own lunch from home or skipping meals. Skipping meals would represent the most costly impact on the school, as this could be expected to lower academic ratings.