Prime Time Court Club (PTCC) has been in business for five years. The club has experienced cash flow problems each year, especially in the summer when court use is quite low and new membership sales are insignificant. Temporary loans have been obtained from the local bank to cover the summer shortages. Additional permanent capital has also been invested by the owners. The owners and the bank have decided some action needs to be taken at this time to improve PTCC's net cash flow position. They would like to review a quarterly cash budget based upon a revised fee structure that hopefully would increase club revenues. The purpose of the cash budget would be to better anticipate both the timing and amounts of the probable cash flow of the club and to determine if the club can survive. John Harper, club manager, recommended that the membership dues be increased and that the hourly court time fees be replaced with a monthly charge for unlimited court use. He believes that this plan will increase membership and that the cash flow and timing problem should be reduced. The proposed fee schedule, which is consistent with rates at other clubs, is presented below. In his opinion, the proportions of the different membership categories should not change, but the total number of members will increase by \(10 \%\). Court use will also increase an estimated \(20 \%\) as a result of this new program. The pattern of use throughout the year is not expected to change.

The present fee structure, the distribution among membership categories, and the projected 20X6 operating data including membership status, court usage, and estimated operating costs are presented below. The projected operating data presented in the table were based on the present fee structure before Harper's proposed fee schedule was recommended.

Required:

(a) Construct a quarterly cash budget for one year for PTCC assuming the new fee structure is adopted and John Harper's estimates of increases in membership and court use occur. Assume the transition from the old to the new fee structure is immediate and complete when preparing the budget.

(b) Will John Harper's proposal solve the summer cash shortfall problem? Explain your answer.

(c) Will John Harper's proposal support a conclusion that the club can become profitable and survive in the long-run? Explain your answer.

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Proposed Fee Schedule Annual Membership Membership Monthly Court Category Fees Individual $75 Charges $10 Youth 45 8 Family 150 18 Present Fee Structure Annual membership dues Individual....... Youth Family.... Court time fees Prime. Regular Membership Distribution Individual.... Youth..... Family....... $45 30 100 $10 per hour 6 per hour 50% 20 30 100%