Well, I remember I had a boy in my class, in Year Five, and I went to school with him from then until Year Twelve. He was a Chinese from Papua New Guinea. He was often a naughty boy, and could be quite cocky when he wanted to be. One day, I remember our teacher held a matre long blackboard ruler within centimetres of his face and remarked that he knew why he had a nose like he did. The teacher might not have had racist intentions, but it was a racist statement.
If I had had a child in the year who came home and told me that the teacher had said that, I would have sat them down and said, "Okay, you're telling me what the teacher said, in class, but don't EVER say that to the boy or let me hear you saying that to ANYBODY ever, again." I would also gone to see the principal and said that it was unacceptable. (This teacher, on another occasion, whilst we were reading The Witches, by Roald Dahl, told a girl who was talking in class to go outside, and he got carried away and told her that she smelt of dog's droppings. The principal, came to the class two days later, and said to us, "By all means, read it. Enjoy the books. But don't EVER let me hear you saying that to a fellow student." I remember, also, this teacher used to pick a Maori kid up by the ears, and he used to run his hands through his hair. One day, I remember, he got the Maori kid (a tall kid) and put him over his lap (bottom facing up) and held his hand above the kid's backside as if intending to spank him)
I remember, as a five year old, hearing a song about a man who wasn't liked because he hated people who, by a racist term, rhymed with cogs. I remember saying that the man was naughty.
I would have sat down with the child and said that what was said was racist, rude and unnecessary after apologizing to the lady, and explained why some people had different shaped faces (for example, how Asian people had more fat above their eyelids). I would have then, the next time I saw the lady, have asked the child to apologize.