Tom and Lynda are considering several actions in response to another gym opening nearby. Tom believes that Hercules should focus on actions that target family memberships, as he believes family memberships to be more profitable than individual memberships. He therefore wishes to add more classes and other activities of greater interest to families. Lynda is less sure because she thinks that families also use the gym more intensively. She thinks that individuals might cost less (even if their apparent usage is more) because they tend to focus on using easy to maintain and long-lasting exercise equipment (e.g., dumbbells) rather than costly items such as the pool. They provide the following data regarding uses and costs.

Required:
a. Calculate profit per individual and family membership. Allocate all costs (fixed and variable) using the number of visits as the allocation basis.
b. Calculate profit per individual and family membership. Develop suitable drivers for each of the costs except for the items deemed to be facility-level costs.
c. Based on your answers to the above parts, what advice do you offer Tom and Lynda?
d. Would you classify the analysis in part (b) as activity-based costing?

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Individuals Fami Number of memberships Persons per membership (average) # of visits per month per person Minutes on exercise equipment per month # of class sessions attended per person Minutes on cardio machines per month per person # of visits to pool per person % of members paying with credit card Membership fee per month 500 200 8 120 3 120 30 12 120 0.2 0.5 0.5 0.8 $160 $100 Variable costs Supplies-towels, etc. Supplies for classes Water (50% relates to pool and 50% relates to showers) Credit card fees Fixed costs Estimated wear and tear on cardio equipment Estimated wear and tear on weights and related 22,500 2,500 3,000 1,012 1,500 900 equipment Instructor salaries and other class-related costs Pool maintenance Utilities (electric and gas) Staff salaries (front desk, office) Rental and maintenance for building Other admin expenses Total costs 12,000 1,200 2,500 13,500 5,000 3,500 $69,112