Family, Fitness, and Fun (Triple-F) Health Club

Triple-F Health Club (Family, Fitness, and Fun) is a not-for-profit family-oriented health club. The club's board of directors is developing plans to acquire more equipment and to expand club facilities. The board plans to purchase about $25,000 of new equipment each year and wants to establish a fund to purchase the adjoining property in four or five years. The adjoining property has a market value of about $300,000.

The Triple-F Health Clubs board of directors currently prepares the annual budget themselves without input from Jane and the six department managers and then allocates the budgeted dollars to each department. As part of your report, Jane would like you to discuss the advantages and disadvantages having Jane and department managers participate in the annual budget process. Jane and the department managers would prepare their own department budgets as a basis for developing Tripel-Fs annual budget in comparison to the current process where they have no input to the annual budget.

The club manager, Jane Crowe, is concerned that the board has unrealistic goals in light of the club's recent financial performance. She has sought the help of a club member with an accounting background to assist her in preparing a report to the board supporting her concerns. The member reviewed the club's records, including the cash-basis income statement in Appendix A.

Required

Jane would like you to prepare a cash budget for 2024 for the Triple-F Health Club and explain any operating problems that this budget discloses for the Triple-F Health Club. Is Jane Crowe's concern that the board's goals are unrealistic justified?

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Cash revenues: Annual membership fees Lesson and class fees Miscellaneous

Total cash revenues

2023

$355,000 234,000 2,000 $591,000

2022

$300,000 180,000 1,500 $481,500

36,000 190,000 150,000

15,500 15,000 37,800

1,500 $445,800 $35,700

Appendix A

Triple-F Health Club Income Statement (Cash Basis) For the years ended October 31

Cash expenses: Manager's salary and benefits Regular employees' wages and benefits Lesson and class employees' wages and benefits Towels and supplies Utilities (heat and light) Mortgage interest Miscellaneous 2,000

Total cash expenditures $496,100 Increase in cash $94,900

Additional financial information is on the next page.

36,000 190,000 195,000

16,000 22,000 35,100

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Other financial information as of October 31, 2023:

Cash in checking account

Petty cash

A/P, purchase of supplies and utilities

Exercise Equipment

$7,000 $300 $2,500

(due in November)

$25,000 $10,000 $15,000 $25,000 (cash)

$600,000 $120,000

$30,000 9.00% 2023 2022

1 years 3.00%

Purchase of exercise equipment during the year Portion of purchase price paid in cash Balance outstanding as of October 31, 2023

Planned purchase of equipment, coming year

Acquisition costs (2022):

Land and building Cash payment, at time of acquisition Financing:

Annual principal payment, November 1st

Plus: interest on unpaid balance, b-o-y Current Year

Year Property Was Acquired

Years of mortgage amortization to date

Anticipated annual membership growth rate

Membership fees increases:

2023 (actual) 15.00%

2024 (est.) 10.00%

Lesson and class fees growth in 2024 = same as growth rate experienced in 2023

Miscellaneous revenue growth rate, 2024 = same as growth rate in 2023

Expected increases in operating expenses:

Hourly wage rates and the manager's salary 15.00% Towels and supplies, utilities, and misc. 25.00%

Lesson and class employee cost increase of 30% (consistent with 30% increase in lesson and class fee growth) in addition to 15% hourly wage rate increase above.

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