Recall that Sue Kramer expects total expenses of $142,000 in CHC's first year. She will price a membership at $500 and expects to attract 300 members in the first year. Sue is considering ways to boost CHC's potential membership.
She thinks that if she allows members to pay their membership fees later in the year, the number of members will increase to 320.
The expected number of paid memberships is equal to the total number of memberships minus the expected number of memberships that are never paid.
Determine the expected earnings of CHC based on the following possible scenarios if Sue implements a credit policy
| Number of members who never pay their fee |
CHC's Earning before taxes in the First Year |
| 10 |
|
| 20 |
|
| 30 |
|
| 40 |
|
a. Explain the relationship between the number of members who do not pay their fee and CHC's earnings.
b. Describe the tradeoff between offering credit for members versus not offering credit. Would you recommend that Sue allow credit for her members?