Question

City Racquetball Club (CRC) offers racquetball and other physical fitness facilities to its members.
There are four of these clubs in the metropolitan area. Each club has between 1,800 and 2,500 members.
Revenue is derived from annual membership fees and hourly court fees. The annual membership fees
are as follows:

Individual............................................................................................. $ 40
Student................................................................................................ 25
Family.................................................................................................. 95

The hourly court fees vary from $6 to $10 depending upon the season and the time of day (prime
versus nonprime time).

The peak racquetball season is considered to run from September through April. During this
period, court usage averages 90 to 100 percent of capacity during prime time (5:00–9:00 p.m.) and 50 to
60 percent of capacity during the remaining hours. Daily court usage during the off-season (i.e., summer)
averages only 20 to 40 percent of capacity.

Most of CRC’s memberships have September expirations. A substantial amount of the cash receipts
are collected during the early part of the racquetball season due to the renewal of the annual membership
fees and heavy court usage. However, cash receipts are not as large in the spring and drop significantly
in the summer months.

CRC is considering changing its membership and fee structure in an attempt to change its cash
receipts. Under the new membership plan, only an annual membership fee would be charged, rather than
a membership fee plus hourly court fees. There would be two classes of membership as follows:

Individual ............................................................................................................. $250
Family .................................................................................................................. 400

The annual fee would be collected in advance at the time the membership application is completed.
Members would be allowed to use the racquetball courts as often as they wish during the year under the
new plan.

All future memberships would be sold under these new terms. Current memberships would be honored
on the old basis until they expire. However, a special promotional campaign would be instituted to attract
new members and to encourage current members to convert to the new membership plan immediately.
The annual fees for individual and family memberships would be reduced to $200 and $300,
respectively, during the two-month promotional campaign. In addition, all memberships sold or renewed
during this period would be for 15 months rather than the normal one-year period. Current members
also would be given a credit toward the annual fee for the unexpired portion of their membership fee, and
for all prepaid hourly court fees for league play that have not yet been used.

CRC’s management estimates that 60 to 70 percent of the present membership would continue with
the club. The most active members (45 percent of the present membership) would convert immediately
to the new plan, while the remaining members who continue would wait until their current memberships
expire. Those members who would not continue are not considered active (i.e., they play five or less
times during the year). Management estimates that the loss of members would be offset fully by new
members within six months of instituting the new plan. Furthermore, many of the new members would
be individuals who would play during nonprime time. Management estimates that adequate court time
will be available for all members under the new plan.

If the new membership plan is adopted, it would be instituted on February 1, well before the summer
season. The special promotional campaign would be conducted during March and April. Once the
plan is implemented, annual renewal of memberships and payment of fees would take place as each
individual or family membership expires.

Required: Your consulting firm has been hired to help CRC evaluate its new fee structure. Write a
letter to the club’s president answering the following questions.
1. Will City Racquetball Club’s new membership plan and fee structure improve its ability to plan its
cash receipts? Explain your answer.
2. City Racquetball Club should evaluate the new membership plan and fee structure completely
before it decides to adopt or reject it.
a. Identify the key factors that CRC should consider in its evaluation.
b. Explain what type of financial analyses CRC should prepare in order to make a complete
evaluation.
3. Explain how City Racquetball Club’s cash management would differ from the present if the new
membership plan and fee structure were adopted.

Step by Step Process.

Answer 1

Requirement 1

City Racquetball Club (CRC) meets potentials and implemented the new membership expense structure from September (starting for a new fiscal year). There would a few transforms dedicated done setting of the fees structure as detailed by the new structure parts convincing reason should pay their participation expenses and other applicable fees great in advance done there must make the previous installment. For those impacts of the new installment organize the constant payment mode get evacuated, for example, hourly fees accused starting with parts against the utilization for court get uprooted. New plan renders great cash management plan Similarly as they get ready money receipts against the expense gained Also give backing will wrist bindings the available cash. What's more diminish the organization cost. With the execution of the new arrange CRC’s capability get improved concerning illustration they oversee their money. Also exercises for the utilization of the money receipts.

Requirement 2.a.

City Racquetball Club note fall in the expense recognized with the organization with that implementation of the new membership plan Similarly as with its influence they didn’t require to get ready record over setting with revenue collection starting with their parts against that use of the court, etc. Those worries faced by the management will be the proper amassing of the input expenses starting with their parts against the benefits rendered toward them. The other primary concern will be raised that there will be a decrease in the number about parts because of the one-time installment for Helter Skelter participation expenses. Be that it may be in turn viewpoint that a substantial number of the benefits are nothing for parts as stated by that new membership plan

Requirement 2.b.

For provoking the estimates of the cash inflows (revenue) What's more outflows (expenditure) they get ready to cash budget. CRC supervised the economy get ready flexible or whatever possible kind from claiming plan for their reason for existing. Furthermore, these get planned great ahead of time and render active backing of the operational exercises of the business.

Requirement 3

This event of profits refurbishment beginning with the shares is reassessed relating to diagrams for the design of an pioneering relationship. As mentioned, the project links need must make payments for the charges in advance; by doing so each office that benefit will eventually start to pursue the complete internship. Conferring with the new affiliation rule, money plans are ready occasionally, however regarding designs information is gathered regarding their income. For an unreasonable execution of a new association strategy, effective cash management skills will be required.