Management Accounting Essay

1683 words - 7 pages

1. Compared with the present fee structure, the new membership plan and fee structure certainly will help improving CRC’s ability to plan its cash receipt.

Under the present fee scheme, revenue is generated from both membership fees and hourly court fees. However, membership fees just accounts for a comparatively small proportion of income of the entity, whilst hourly court fees is main source of its income. Due to the variable rates on different seasons, peak and off-peak seasons, and accordingly different estimated court usage in those times, it will be quite difficult for CRC to predict its future cash receipts. Although the facts that most of current membership will expire on ...view middle of the document...

As above, the new membership plan and fee structure improves CRC’s ability to plan its cash receipt because it reduces the factors that required to be estimated for planning its cash receipt.
2. CRC should evaluate the new membership plan and fee structure completely before it decides to adopt or reject it.

a. Key factors that CRC should consider in its evaluation.

It is recommended that CRC should take several factors into consideration.

(1) Relevant additional expense including labour cost, maintenance cost and advertising expense will arise from new membership plan and fee structure. It is obvious that the new membership plan and fee structure enable members to spend more time on court since they do not have to think about the hourly court fee. Labour cost, as part of the variable cost, might grow. More staff and more hours are needed to maintain the court, assist the members and answer questions at the reception desk. In addition, maintenance cost will increase. The frequency of using equipments will go up and give rise to the additional maintenance cost. The two-month advertising campaign, as a crucial way of promotion, will increase the advertising expense.

(2) The following factors should be taken into account when evaluating the estimation of revenue. Customers’ attendance relates to the peak or non-peak time with respect of the new fee structure. The old fee structure eliminate the members from coming at the same time by using different hourly fees from $6 to $10 depending upon the season and the time of day( prime versus nonprime time). However, the new membership fee structure allows members to come and play at any time of the year including the peak season and the peak time of the day. The situation may get worse. Since the old membership already had 90% to 100% usage at prime time, there will be more members crowded in the court simultaneously. Therefore, if the situation actually happens, the service quality would be negatively affected.

On top of this, the management estimates that 60%-70% of the present membership would continue with the club. There is doubt that whether the loss of members would be offset fully by the new members within six months of instituting the new plan or not, how to ensure individuals play during nonprime time (discussed above).

(3) Competitors’ response to the new fee structure should be taken into account. Despite of the internal factors, there is also an external factor like the competitors response. Competitors will adopt new strategy to attract members from the analysing the drawback of our new fee structure. It is recommended there should be a season which combines the peak and nonpeak time of the year as a test period to implement the new fee structure and make sure it works well at any time of the year.

b. Types of financial analyses CRC should prepare in order to make a complete evaluation.

In order to make a complete evaluation, the following financial analyses are...

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