Question

Tripple F-Health Club offers tennis,swimming and othr physical fitness facilities to its members.there are four of these clubs in the metropolitan area. each club has between 1,700 and 2,500 members. Revenue is derived from annual membership fees and hourly court fees. the annual membership fees are as follows:

Individual------ $ 45 , Student ----------- $ 30, Family ------- $ 100

The hourluy court fees vary from $8 to $12 depending upon the season and the time of day (prime versus non-prime time).

The peak raquetball 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 Tripple-F's memberships have September expirations. A substantial amount of the cash receipts are collected during the early part of the raquetball 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.

Tripple-F 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:

Individual ------- $300; FAmily ------ $50

The annual fee would be collected in advance at the time the membership application is completed. members would be allowed to use the raquetball 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 new membership plan immediately;

The annual fees for individual and family memberships would be reduced to $250 and $450, 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 which have not yet been used.

Triple-F'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 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 fewer 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 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 on February 1st, 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 Triple-F Health club evaluate its new fee structure. Write a letter tothe club's president answering the following questions:

1. Will Triple-F Health Club's new membership plan and fee structure improve its ability to plan its cash receipts ? Explain your answer.

2. Triple-F Health 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 Triple-F should consider in its evaluation.

b. Explain what type of financial analyses Triple-F should prepare in order to make a complete evaluation.

3. Explain how triple-F Health Club's cash management would differ from the present if the new membership plan and fee structure were adopted.

( Please could you explain in details all the answer and inform me as soon as it's ready .I really need it urgently , preferably within an hour . I'm living in Belgium and the Hour difference is +9 hours i.e. We are 9 hours ahead of the PST.) My email for notification sujoanghoshatgooglemailcom and my mobile phone number 0032 472056439.

Answer 1

1)Cash receipt is a specialised account that accounts for cash or credit sales received and analyses these cash inflows. In Triple-F Health Club, there are 2 main factors affecting the cash receipt and they are the annual membership fees and the hourly court fees.
The annual membership fees are more direct with a fixed fee that is only collected annually. Therefore, annual membership fees are considered to be factors that are constant and fixed. However, for the hourly court fees, their fixed priced per unit vary from $8 to $12 and transactions transact every day. The total price will vary as the hourly court fees are dependent on variables such as the number of hours spent in the club, number of customers, season of the year and the time of the day, whether it is the prime time or the non-prime time. Therefore, cash flows generated from the hourly court fees are not fixed and are unpredictable it mainly covers a larger area of the cash receipts compared to the annual membership fees.

With the new implementation of the new membership plan, Triple-F Health club will be able to improve its ability to plan its cash receipts. This is because, with the hourly court fees taken out, only the annual membership fees are left to be charged which means that factors affecting the cash receipts are tremendously reduced.
Annual membership fees are fixed and constant which will result in generating lesser and more predictable cash flows. Possible loss of cash daily from the hourly court fees are also eliminated from the implementation of the new membership plan. These fluctuations are not predictable and are subtle. Therefore, realization of these fluctuations will only occur after a period of time which might lead to a possibility of Triple-F Health Club going into financial debts.
Cash receipts will be better planned with the improvement of cash flow management and drafting out future financial plans such as avoiding idle or shortages of cash will be more effective. Implementation of the new fee structure will not affect Triple-F Health club’s overall profit. In fact, it will also have a higher possibility of increasing profit or a reduction on the existing or future debts.

Conclusion:. Yes, Triple-F Health Club should be better able to plan its cash receipts with the new membership plan and fee structure. The cash flows should be more predictable and certain because the large, prepaid membership fee becomes the only factor affecting cash receipts. The hourly court fees, which were dependent upon a variable that could fluctuate daily, are eliminated.

2 a)Customer’s reaction to new fee structure:
The first key factor will be on how existing or new customers react to the new price and packages change which will lead to the cause of the third factor, a loss or a gain to the company. When Triple-H Health club decides to take out the hourly court fees and raise a higher annual membership fee, they are taking a big risk as they will be losing a certain number of customers. Customers will compare with other competitors of Triple-H Health club and consider if paying for a higher annual membership fee is more worth it. Triple-H Health club will have to be able to provide more benefits compared to their competitors with a raised package price. The two-month promotional campaign by the club is a good example of how it will be able to help retain existing customers or attract new ones.
Cost to implement the new membership plan:
The second key factor will be the overall cost to implement the new membership plan and the change of the fee structure. Triple-F Health Club is implementing a new system and this process can also be called a changeover. When implementing a changeover, the cost can be very high if no proper planning and evaluation is involved. Triple-F Health Club will need to reduce as much costs as possible to achieve what is called a lean changeover. Cost from implementing a new fee structure will come from different factors such as extra training involved needed for frontline staff and staff from the finance department. Frontline staff will need to be trained on the new prices, handling customers’ possible queries and familiarizing the new packages implemented on systems or on manual forms. Staff from the finance department will be thoroughly briefed over the new implementations as producing accounts for end of year checks with new prices and packages can be confusing. The finance department will also need to generate emails and mails to all customers to inform them about the new implementation. All these factors will require additional manpower which will result in possible premium overtime from existing staff or hiring a temporary employee.
Profit or loss:
The third factor will be analyzing if this new implementation will cause the company to earn or incur a loss. The main cash inflow of Triple-H Health club is from customers purchasing the hourly court fees and the annual membership fees. An analysis of this factor will include how the new membership fee structure have to cover the losses of cash inflow generated from the hourly court fees and the loss of customers who do not wish to continue with their existing annual membership package. The management of Triple-H Health club has done a part of the analysis by estimating the loss of members and the cash inflow generated from the new annual membership fee prices. The new prices will be able to offset fully the losses incurred within six months of implementing the new plan. Triple-H Health club will have to analyze and estimate the number of customers that will be increasing or decreasing during different time of the day after implementation of the new plan as since customers are paying for annual membership fee, most will consider visiting the club during the prime time of the day which will cause overcrowding

b)Financial Analysis is used to evaluate if the project will be suitable or successful for investments. The 3 types of financial analysis we will be looking into is Balance Sheet, Income Statement and the Cost Volume Profit Analysis.
The Balance Sheet:
The balance sheet is one of a financial analysis that will assist Triple-H Health club in comparing and analyzing the expected performance of the new fee structure with the company’s current financial position from reports of the company’s assets, liabilities and all monetary units such as transactions of the membership fees.
Income Statement:
The second type of financial analysis is the income statement. The income statement will be able to assist Triple-H Health club to view its performance over a period of time and from this performance viewing, they will be able to better analyze to see if they are in any position to be able to implement new plans into the company. The income statement will be able to portray the company’s revenues earned and expenses incurred and from this report, they will be able to see how well they have been progressing on their profit and loss with the current packages and compare with the estimated value of the new package.
Cost Volume Profit Analysis:
The third financial analysis method Triple-H Health Club can consider using is the cost volume profit analysis. This financial analysis will help the company analyze how the company’s profit will be affected by the different variable costs (hourly court fees and the fixed costs (annual membership fee). It will help in comparing with the current fee structure and the new fee structure for example, analyzing if the variable cost of hourly court fees play a major part in the company’s profit and if by taking this package out, will the company’s profit move downwards permanently.

Conclusion:
a. Factors that management should consider before adopting the new membership plan and fee structure include:
* Costs associated with the plan changeover
* Public acceptance of the new proposal
* The expected number of memberships by classes that can be sold for each plan at the specified rates
* The anticipated rate of return for excess cash or cost of borrowing funds in periods of cash shortages
b. Financial analyses conducted by Triple F’s management could include a forecast of projected cash inflows and outflows by months, an income statement including interest revenue and expense, a cost-volume-profit analysis, and a cash management plan for excess cash or cash shortages.

3)Cash management is about handling the cash flow and the usage of cash in the company. The present membership plan consists of different variable and fixed unit costs which will result in many different and unpredictable cash flows. With such cash flows, cash management will be less effective and more complicated as there are too many different fees and transactions on a daily basis.
With the new membership plan implemented, cash management will be improved and more effective as cash flows are more fixed, predictable and simplified compared to the old membership plan. Triple-F Health club will be able to better collect, manage and use of cash to invest on short-term investments and avoid from incurring any huge losses that will result in the company going into debts or into insolvency state.

Conclusion:. Because Triple-F's cash flows should be more predictable, management should be better able to plan for and control cash disbursements. In addition, management should be better able to plan for short-term investments when excess cash occurs or to arrange for short-term financing when there are cash shortages. The collection and billing function is also simplified with the new membership plan and fee structure. There would be only a one-time case receipt rather than multiple transactions.