Brisbane Badminton Club offers airconditioned badminton court facilities to its members. The club has been operating...
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Brisbane Badminton Club offers airconditioned badminton court facilities to its members. The club has been operating at prime location in Brisbane since 1985. The club has 2,000 members. Revenue is generated from annual membership fees and hourly court usage fees. The current membership composition and current annual membership fees are as follows: Membership category % of total members Annual membership fees ($) Individual $50 Student $30 Family $100 25% 25% 50% The hourly court usage fees are $22 at the prime time of the day and $12 at other times during the peak season. There are 10 court rooms at the club. The club operates 362 days per year and the club's daily operating hours are 6 am to 12 noon and 2 pm to 8 pm. The peak season runs from October to April (181 days). During peak season, court usage averages from 90% to 100% of capacity during prime time (6 am to 8 am in the morning and 6 pm to 8 pm in the evening). The court usage during remaining hours of the day during peak season ranges between 50% to 60% of capacity. Daily court usage during the off-season averages from 40 to 50% of the capacity, and is charged at a flat fee of $16 per hour. The club's memberships expire at the end of September each year. A substantial amount of revenue is collected during early part of peak season due to the renewal of annual membership fees and heavy facilities usage. However, revenue collection during off-season drops significantly due to reduced facilities usage. The club had signed a long-term lease 10 years ago for the space of its facilities which would expire in September 2023. The management of the club knew that the lease payments would be substantially higher as per the new lease contract commencing October 2023. To ensure that the club's operations are profitable and to improve the cash flow planning of the club in the context of higher operating expenses, the club is considering some major changes to its revenue stream. For the start of the new membership year commencing October 2023, Brisbane Badminton Club is considering introducing a new membership and fees structure. Under the new membership plan, only an annual membership fee would be charged, rather than a membership fee plus hourly facilities usage fees. The predicted membership composition and planned annual membership fees for the upcoming membership year is as follows: Membership category % of total members Annual membership fees ($) Individual membership $1,200 Student membership $1,080 Family membership $2,400 25% 25% 50% The annual membership fees would be collected in advance at the time of member enrolments. Members would be allowed to use the club facilities as often as they wished 1 during the year under the new plan. All future memberships would be sold under these new terms. A special promotional campaign is planned during September 2023 to attract new members and to encourage current members to remain with the club. A discounted annual membership fees was offered during the promotional campaign as follows: Individual membership: $1,000 and family membership: $2,000. The management of Brisbane Badminton Club came up with two sets of estimates (Optimistic and pessimistic scenarios) in terms of membership enrolments for the upcoming year commencing October 2023. Particulars % current members to continue with the club % current members to avail discounted pricing during special promotional campaign % current members to enrol for membership in October 2023 Number of new member enrolments each month from October 2023 to March 2024 Optimistic scenario Pessimistic scenario 70% 35% 35% 100 40% 20% 20% 40 The management estimates that even though not all current members will continue with the club under the new membership terms and pricing, the loss of members would be offset by new members joining the club within the first six months of introducing the new membership terms and pricing. The new members joining each month during October 2023 to March 2024 would pay a proportional amount of the annual membership fees on joining. Management estimates that adequate facilities would be available for all members under the new plan. The budgeted expenses for the club for the current year and upcoming year Oct 2022 to Sep 2023 $100,000 $25,000 $160,000 $50,000 Particulars Lease payments Depreciation Salaries Other fixed operating expenses Variable operating expenses Variable marketing expenses 1% of revenue 1% of revenue Oct 2023 to Sep 2024 $300,000 $25,000 $160,000 $50,000 1% of revenue 1% of revenue You are a consulting management accountant of Brisbane Badminton Club. You are required to evaluate the impact of club's proposed membership pricing on the budget for the upcoming membership year (October 2023 to September 2024). The Club wants to evaluate the new membership plan and fees pricing structure before it decides to accept or reject it. (1) Identify the key factors that Brisbane Badminton Club should consider in evaluating and budgeting for this proposed membership pricing. [1 Mark] 2 (2) How will the club's new membership plan and pricing structure improve its ability to plan its revenues and costs? Explain your answer. [1 mark] (3) Estimate the impact on sales revenue and operating profit resulting from the planned change in membership fee structure for the upcoming membership year (October 2023 to September 2024) and compare it with the financials of current year (October 2022 to September 2023). State any assumptions that you need to make. [8 Marks] Brisbane Badminton Club offers airconditioned badminton court facilities to its members. The club has been operating at prime location in Brisbane since 1985. The club has 2,000 members. Revenue is generated from annual membership fees and hourly court usage fees. The current membership composition and current annual membership fees are as follows: Membership category % of total members Annual membership fees ($) Individual $50 Student $30 Family $100 25% 25% 50% The hourly court usage fees are $22 at the prime time of the day and $12 at other times during the peak season. There are 10 court rooms at the club. The club operates 362 days per year and the club's daily operating hours are 6 am to 12 noon and 2 pm to 8 pm. The peak season runs from October to April (181 days). During peak season, court usage averages from 90% to 100% of capacity during prime time (6 am to 8 am in the morning and 6 pm to 8 pm in the evening). The court usage during remaining hours of the day during peak season ranges between 50% to 60% of capacity. Daily court usage during the off-season averages from 40 to 50% of the capacity, and is charged at a flat fee of $16 per hour. The club's memberships expire at the end of September each year. A substantial amount of revenue is collected during early part of peak season due to the renewal of annual membership fees and heavy facilities usage. However, revenue collection during off-season drops significantly due to reduced facilities usage. The club had signed a long-term lease 10 years ago for the space of its facilities which would expire in September 2023. The management of the club knew that the lease payments would be substantially higher as per the new lease contract commencing October 2023. To ensure that the club's operations are profitable and to improve the cash flow planning of the club in the context of higher operating expenses, the club is considering some major changes to its revenue stream. For the start of the new membership year commencing October 2023, Brisbane Badminton Club is considering introducing a new membership and fees structure. Under the new membership plan, only an annual membership fee would be charged, rather than a membership fee plus hourly facilities usage fees. The predicted membership composition and planned annual membership fees for the upcoming membership year is as follows: Membership category % of total members Annual membership fees ($) Individual membership $1,200 Student membership $1,080 Family membership $2,400 25% 25% 50% The annual membership fees would be collected in advance at the time of member enrolments. Members would be allowed to use the club facilities as often as they wished 1 during the year under the new plan. All future memberships would be sold under these new terms. A special promotional campaign is planned during September 2023 to attract new members and to encourage current members to remain with the club. A discounted annual membership fees was offered during the promotional campaign as follows: Individual membership: $1,000 and family membership: $2,000. The management of Brisbane Badminton Club came up with two sets of estimates (Optimistic and pessimistic scenarios) in terms of membership enrolments for the upcoming year commencing October 2023. Particulars % current members to continue with the club % current members to avail discounted pricing during special promotional campaign % current members to enrol for membership in October 2023 Number of new member enrolments each month from October 2023 to March 2024 Optimistic scenario Pessimistic scenario 70% 35% 35% 100 40% 20% 20% 40 The management estimates that even though not all current members will continue with the club under the new membership terms and pricing, the loss of members would be offset by new members joining the club within the first six months of introducing the new membership terms and pricing. The new members joining each month during October 2023 to March 2024 would pay a proportional amount of the annual membership fees on joining. Management estimates that adequate facilities would be available for all members under the new plan. The budgeted expenses for the club for the current year and upcoming year Oct 2022 to Sep 2023 $100,000 $25,000 $160,000 $50,000 Particulars Lease payments Depreciation Salaries Other fixed operating expenses Variable operating expenses Variable marketing expenses 1% of revenue 1% of revenue Oct 2023 to Sep 2024 $300,000 $25,000 $160,000 $50,000 1% of revenue 1% of revenue You are a consulting management accountant of Brisbane Badminton Club. You are required to evaluate the impact of club's proposed membership pricing on the budget for the upcoming membership year (October 2023 to September 2024). The Club wants to evaluate the new membership plan and fees pricing structure before it decides to accept or reject it. (1) Identify the key factors that Brisbane Badminton Club should consider in evaluating and budgeting for this proposed membership pricing. [1 Mark] 2 (2) How will the club's new membership plan and pricing structure improve its ability to plan its revenues and costs? Explain your answer. [1 mark] (3) Estimate the impact on sales revenue and operating profit resulting from the planned change in membership fee structure for the upcoming membership year (October 2023 to September 2024) and compare it with the financials of current year (October 2022 to September 2023). State any assumptions that you need to make. [8 Marks]
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Managerial Accounting Creating Value in a Dynamic Business Environment
ISBN: 978-0078025662
10th edition
Authors: Ronald Hilton, David Platt
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