The owners of LA's Gym currently are working on their operating plan for the coming year, and they have provided you with the following average...

The owners of LA's Gym currently are working on their operating plan for the coming year, and they have provided you with the following average membership and cost data for the previous year:  

                                 Annual membership fee                                  $400 per member

                                 Number of members                                          6,000

                                 Variable cost (supplies, instructors, etc.)         $130 per member

                                 Fixed costs (equipment, salaries, etc.) $945,000

The owners anticipate that, for the coming year, both total fixed costs and the variable cost per member will remain unchanged from the previous year.

a.    Assuming the same number of members as last year, what is LA's expected profit for the coming year?

b.    How many members must LA's Gym have to break even?

c.    The owners of LA's Gym are considering reducing the annual membership fee by 10%. They believe this will increase membership to 7,500 members for the coming year. What will profit be if the owner's adopt this strategy (note: the membership fee for all members will be reduced by 10%)? Does this seem like a good option? Support your answer with calculations.