Manegement Accounting

Wendy's Gym is a fitness and aerobic center located in Hamilton, Ontario. With over 25,000 square meters of space, Wendy's Gym offers its customers an unparalleled experience, including the finest equipment for cardiovascular training, resistance training, and free-weight training. Wendy's Gym also features state-of-art aerobics, spinning, yoga and Tai Chi classes taught by nationally certified instructors. Finally, when not working out, patrons can enjoy other amenities such as tanning salon, sauna, and juice bar. The owners of Wendy's Gym are working on their operating plan for the coming year and they have provided you the following membership and cost data for the previous year: Membership fee $500 per member Number of members 5,000 Variable costs (supplies, etc.) $200 per member Fixed costs (equipment, salaries, etc.) $1,200,000 The owners anticipate that both the fixed total costs and variable cost per member will remain the same for the coming year. Required: 1. The owners are considering reducing the membership fee by 10%. They believe this action will increase membership to 6,500 for the coming year. What will the profit be if this alternative is adopted? Does this seem like a good option? Explain your answer with data analysis. 2. As an alternative to reducing the membership fee by 10%, Wendy's Gym could increase the membership to 6,500 by adopting a special advertising campaign. What is the maximum amount that Wendy's Gym should pay for this advertising campaign? Explain your answer using data analysis. Advise the owners what they should do and what other information they would need in order to make a better decision