+61480015851
MA515: Critical Analysis And Evaluation of Financial Solutions To Management - Managerial Accounting Assessment Answer
Download Solution
Order New Solution
Subject Code: MA515
Internal Code: 1AHHJD
Assessment Description
Hawthorn Leisure Works (HLW) offers tennis courts and other physical fitness facilities to its members. The club has 2,000 members. Revenue is derived from annual membership fees and hourly court fees. The annual membership fees are:
Approximately half the memberships are family, and the remaining memberships are split equally between individuals and students. For the next two financial years, the hourly court fees are $8 and $12, depending on the season and the time of the day (prime versus non-prime time). There are 10 courts at each club. The courts are available for 12 hours per day, from 9 am to 9 pm.
The peak tennis season runs from October to April. During this period, court usage averages from 90 to 100 percent of capacity during prime time (5 pm to 9 pm) and from 50 to 60 percent of capacity during the remaining hours (9 am to 5 pm). Daily court usage during the off-season averages from 20 to 40 percent of capacity, and is charged at $6 per hour. All of HLW’s memberships expire at the end of September. A substantial amount of the cash receipts is collected during the early part of the tennis season due to the renewal of annual membership fees and heavy court usage. However, cash receipts are not as large in autumn and drop significantly in the winter months.
For the start of the new financial year on 1 October, HLW is considering introducing a new membership and fee structure in an attempt to improve its cash flow planning. 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, with annual fees as follows:
The annual fee would be collected in advance at the time the membership application was completed. Members would be allowed to use the tennis courts as often as they wished during the year under the new plan. All future memberships would be sold under these new terms. A special promotional campaign would be instituted to attract new members and to encourage current members to remain with the club. The annual fees for individual and family memberships would be reduced to $250 and $450, respectively, if members pay for their yearly memberships in advance during the two-month promotional campaign.
Hawthorn Leisure Works’ management estimates that 70 percent of the current members will continue with the club, and student members would convert to individual membership. The most active members (45 percent of the current members) would pay the yearly fee in advance and receive the special fee reduction, while the remaining members who continued would renew memberships in October. Those members who would not rejoin are not considered active (that is, they play five times or less during the year). Management estimates that the loss of members would pay a proportional amount of the yearly fee on joining. Furthermore, many of the new members would be individuals who would play during non-prime 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 at the start of the new financial year (1 October), which is the start of the tennis season. The special promotional campaign would be conducted during August and September, prior to the start of the new financial year.
Required
Your consulting firm has been hired to help HLW evaluate its new fee structure. Write a letter to the club’s managing director dealing with the following issues:
1. Will HLW new membership plan and fee structure improve its ability to plan its cash receipts? Explain your answer.
2. Estimate the effect on sales revenue resulting from the planned change in fee structure for the next financial year, which starts 1 October and ends on 30 September. State any assumptions that you need to make.
3. Hawthorn Leisure Works should evaluate the new membership plan and fee structure completely before it decides to adopt or reject it.
(a) Identify the key factors that HLW should consider in its evaluation.
(b) Explain what type of financial analyses HLW should prepare in order to make a complete evaluation.
4. Explain how HLW’s cash management practices may differ from the present if the new membership plan and fee structure as adopted.
Managerial Accounting Assessment Answer
TASK:
Assessment Description
Hawthorn Leisure Works (HLW) offers tennis courts and other physical fitness facilities to its members. The club has 2,000 members. Revenue is derived from annual membership fees and hourly court fees. The annual membership fees are:
Approximately half the memberships are family, and the remaining memberships are split equally between individuals and students. For the next two financial years, the hourly court fees are $8 and $12, depending on the season and the time of the day (prime versus non-prime time). There are 10 courts at each club. The courts are available for 12 hours per day, from 9 am to 9 pm.
The peak tennis season runs from October to April. During this period, court usage averages from 90 to 100 percent of capacity during prime time (5 pm to 9 pm) and from 50 to 60 percent of capacity during the remaining hours (9 am to 5 pm). Daily court usage during the off-season averages from 20 to 40 percent of capacity, and is charged at $6 per hour. All of HLW’s memberships expire at the end of September. A substantial amount of the cash receipts is collected during the early part of the tennis season due to the renewal of annual membership fees and heavy court usage. However, cash receipts are not as large in autumn and drop significantly in the winter months.
For the start of the new financial year on 1 October, HLW is considering introducing a new membership and fee structure in an attempt to improve its cash flow planning. 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, with annual fees as follows:
The annual fee would be collected in advance at the time the membership application was completed. Members would be allowed to use the tennis courts as often as they wished during the year under the new plan. All future memberships would be sold under these new terms. A special promotional campaign would be instituted to attract new members and to encourage current members to remain with the club. The annual fees for individual and family memberships would be reduced to $250 and $450, respectively, if members pay for their yearly memberships in advance during the two-month promotional campaign.
Hawthorn Leisure Works’ management estimates that 70 percent of the current members will continue with the club, and student members would convert to individual membership. The most active members (45 percent of the current members) would pay the yearly fee in advance and receive the special fee reduction, while the remaining members who continued would renew memberships in October. Those members who would not rejoin are not considered active (that is, they play five times or less during the year). Management estimates that the loss of members would pay a proportional amount of the yearly fee on joining. Furthermore, many of the new members would be individuals who would play during non-prime 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 at the start of the new financial year (1 October), which is the start of the tennis season. The special promotional campaign would be conducted during August and September, prior to the start of the new financial year.
Required
Your consulting firm has been hired to help HLW evaluate its new fee structure. Write a letter to the club’s managing director dealing with the following issues:
1. Will HLW new membership plan and fee structure improve its ability to plan its cash receipts? Explain your answer.
2. Estimate the effect on sales revenue resulting from the planned change in fee structure for the next financial year, which starts 1 October and ends on 30 September. State any assumptions that you need to make.
3. Hawthorn Leisure Works should evaluate the new membership plan and fee structure completely before it decides to adopt or reject it.
(a) Identify the key factors that HLW should consider in its evaluation.
(b) Explain what type of financial analyses HLW should prepare in order to make a complete evaluation.
4. Explain how HLW’s cash management practices may differ from the present if the new membership plan and fee structure as adopted.
This Accounting Assessment has been solved by our Accounting experts at My Uni Paper. Our Assignment Writing Experts are efficient to provide a fresh solution to this question. We are serving more than 10000+ Students in Australia, UK & US by helping them to score HD in their academics. Our Experts are well trained to follow all marking rubrics & referencing style.