Private Fitness Llc

1074 Words May 19th, 2010 5 Pages
Case 15-1: Private Fitness LLC*
Private Fitness LLC is a springboard case that can be used as the basis of a discussion of management's need for information. It serves the same purpose for Part 2 of the book that the Kim Fuller case did for Part 1.
Approach
This case uses a small business as its setting so that students can visualize the business's activities, and so questions of generally accepted accounting principles will be essentially irrelevant. In fact, a shift the student needs to make as he/she begins Part 2 of the book is to think of accounting primarily in terms of its usefulness to a company's management, rather than in terms of reporting to shareholders and other outside parties. Because of the differing focus of Part 1 of
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These include the following:

1. Scheduling system. What instructors, and other employees, should be on duty at what hours? When should classes of particular types be scheduled? What rooms should be used for what purposes at what hours? When should facility cleaning and maintenance be scheduled? What is the capacity utilization? Are more space, equipment, or instructors needed?

2. Revenue system. Revenue is dependent on the number of clients attending classes and private workouts.

3. Payroll system. What pay is due the employees? Most of the compensation is commission-based, paid as a percentage of revenue associated with the instructor’s activities. But the manager, Kate Hoffman, is also paid a salary.

4. Operating cost system. Bills for on-going items, like rent, heat, and light, need to be paid on time. The expenses need to be recorded accurately and tracked over time so that trends can be monitored.

5. Fixed asset system. The costs of the facility and equipment need to be assigned to time periods.

Issues that might be raised:

1. How often should Rosemary prepare summary financial statements (e.g., monthly, quarterly, annually)? Does she need an “income” statement, or is a cash flow statement sufficient for her management purposes? Does she need to prepare a balance sheet at all?

2. How should prices be set? Should they be set only by looking at competitors’ prices, or should they depend on costs (e.g., cost of the space and…

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