Accounting for Decision Making and Control 6th Edition by Jerold Zimmerman

Exercise 16

Bay View Country Club is considering imposing a minimum spending plan on its members. Each member would prepay $50 of restaurant charges at the beginning of each month in addition to the normal dues. At the end of the month, a member who has restaurant charges in excess of $50 is billed the difference. A member who spends less than $50 in any month loses whatever he or she doesn't spend. (Note: Only members or their guests can eat at the club. The club's restaurant is not open to the general public.)
In explaining why the minimum is being proposed, the treasurer gave the following reasons:
The food operation is losing more money than budgeted. We have always budgeted to lose about $50,000 in the restaurant. But this year, the projected loss is $150,000. The problem is the revenue side of the budget. Revenues are down about 20 percent from budget, while costs are on target. If the members are unwilling to support the restaurant by eating here, then they have to pay for the unbudgeted deficit of $100,000 with either higher dues, a special assessment, or a minimum spending plan.
About one-third of the members spend in excess of $50 per month at the restaurant, but two- thirds spend less than $50 per month. It is not fair that one-third of the members are supporting the other two-thirds.
Knowing how much the members will be eating at the club each month will help tremendously in our budgeting and planning process. It will cut down on food waste because we will know how much revenue we will be generating and can plan accordingly.
Required:
Critically evaluate the costs and benefits of the proposed minimum spending plan. What consequences are likely to result