Gibsons Gym is a fitness and aerobic center located in Austin, TX. With over 25,000 square feet of space, Gibsons offers its customers an unparalleled fitness experience, including the finest equipment for cardiovascular training, resistance training, and free-weight training. Gibsons also features state-of-the-art aerobics, spinning, yoga, and tai chi classes taught by nationally certified instructors. And, when not working out, patrons can enjoy other amenities such as Gibsons tanning salon, hot tub, sauna, and juice bar. The owners of Gibsons Gym currently are working on their operating plan for the coming year, and they have provided you with the following average membership and cost data for the previous year:

Annual membership fee $500 per member Number of members 5,000 Variable cost (supplies, instructors, etc.) $200 per member Fixed costs (equipment, salaries, etc.) $1,200,000 The owners anticipate that, for the coming year, both total fixed costs and the variable cost per member will remain unchanged from the previous year.

-- In addition to lowering the regular membership fee by 10%, the owners are considering offering an additional type of membership. Customers under the current membership plan are limited to a certain set number of classes, services, etc. Market research indicates that some potential members may be willing to pay more for unlimited access to all gym amenities. To add this option, the owners would need to hire a director of premium membership, at an annual salary of $70,000 per year. The premium annual membership fee would be $1000, and the annual cost per premium member will be $300 more than the regular member cost. Preliminary market research suggests 10% of members would be interested in this upgrade. How many premium and regular memberships must be sold in order to meet a desired after-tax profit of $315,000 (still assuming 30% tax rate, and assuming regular membership fee will be reduced by 10% from prior year)?

--The owners believe premium membership sales are low due to lack of awareness. They also are not currently seeing as many total sales as they need to meet their desired level of income. They met with an advertising firm and now believe an aggressive advertising campaign could boost premium membership sales up to 15% of overall sales, and that the maximum total sales they can expect to see for the year will be 6,250 members. What is the maximum amount that the owners should pay for the advertising campaign to hit the expected profit $315000? What is the maximum the owners should spend on this advertising campaign if they want to meet a desired after-tax target profit of $315,000 (still assuming 30% tax rate, and assuming regular membership fee will be reduced by 10% from prior year)?