Acme Manufacturing Company has approached Hercules Health club with a plan to provide discounted memberships to its employees. In particular, Acme will start a match program (i.e., Acme will pay a part of the club fees charged to its employees) to motivate its employees to join the fitness club. In return, Acme wants Hercules to give a 25% discount—that is, the fee to Acme employees would be $60 per person instead of the normal charge of $80 per person per month.
You learn that Hercules currently has 1,000 members and incurs variable costs of $35 per member per month and fixed costs of $40,000 per month. Tom and Lynda tell you that the club can accommodate the 200 members that would be added if they accepted Acme’s proposal. However, they also tell you that more than 200 additional members would strain the club’s capacity.

Required:
a. What is the additional contribution margin if Hercules were to accept Acme’s proposal?
b. Is the answer in part (a) the correct way to evaluate Acme’s proposal?
c. How might allocations help Tom and Lynda improve their decision making? Justify with suitable supporting calculations.