The owners have decided to take action to improve MRC’s net cash flow position. They have asked the club’s financial manager to prepare a projected cash budget based on a proposed revised fee structure. The proposal would increase membership fees and replace the hourly tennis and racquet ball court fees with a quarterly charge that would allow unlimited usage of the courts. The new rates would remain competitive when compared to the rates of other clubs in the area. Although there will be some members who do not renew because of the increase in price, management believes that the offer of unlimited court time will increase membership by 10%.

The proposed fee structure is shown below, along with the current membership distribution. The membership distribution is assumed to remain unchanged. All members would be required to pay the quarterly court charges.

The average membership during the third quarter is projected to be 2,200 people. Fixed costs are $157,500 per quarter, including a quarterly depreciation charge of $24,500. Variable costs are estimated at $15 per hour of total court usage time.
Questions
A. Prepare MRC’s cash budget for the third quarter. Assume the opening cash balance is $186,000, that membership at the beginning of the quarter is 2,000, and that the change to the new pricing structure will be implemented. Include supporting calculations where appropriate.
B. How would sensitivity analysis help MRC management in the decision-making process?
C. Identify at least four factors that MRC should consider before implementing this decision.