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Question - Tom and Lynda own Hercules Health Club. They provide the following information regarding expected membership. You also know that the monthly fee for an individual membership is $100 and the fee for a family membership is $160. Variable costs are $35 and $60, respectively, for the individual and family membership. Fixed costs amount to $40,000 per month.
Month Individual Memberships Family Memberships
Aug 700 300
Sept 690 300
Oct 680 295
Nov 675 290
a. Prepare a revenue budget and an income statement for Aug-Nov.
b. Tom and Lynda are concerned about the downward trend in memberships. They propose to run an advertising campaign that costs $10,000. If they run the ads in September, they expect to obtain 10 more individual members and 5 additional family memberships every month. Revise the budget in part (a) for this action.
c. Should Tom and Lynda run the ad campaign? Be specific about what assumptions, if any, you may need before you can make such a recommendation.
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