Harbor City Health Spa Harvard Case Solution & Analysis

Harbor City Health Spa Case Study Solution

Projected Revenues and Costs

Previously, the firm’s accountant used to project costs on the basis of inflation rate ranging from 5% to 10%, however, as the costs are supposed to be activity based, so the growth in costs must also be based on the activity level or the expected growth in the number of visitors that is 10%. On the basis of these growth percentages, three different projected income statements have been formulated on the basis of their different prices i.e. previous average price per visit, suggested average price per visit and suggested price per activity department. The three projected income statements for Harbor City are given in Appendix 5.

It could be seen that from if the company would charge the previous average price i.e. $10.7, it would have a deficit of 3%. However, if the company would charge the suggested prices including the average price of $16 and the prices per activity department which are based upon costs, it will have a surplus of 32% and 0.47% respectively.

Recommendations

From the above analysis, the company is recommended to pursue the suggested prices per activity department on the basis of its required profit margin as given in the Appendix 4 based on a 5% profit margin. Although, the profit margin with the average price per activity i.e. $16 is much higher than the price per activity department i.e. 32% as compared to 0.47%, but the suggested to pursue individual prices to provide reasonable prices to its customers ibn order to avoid competitive threats in the industry. By implementing an individual pricing strategy, the company could mitigate its losses and became self-sufficient. However, the company must put cost cutting measures along with the individual pricing strategy to provide competitive pricing in the market.

Appendices

Appendix-1: Average Charge per Visit

Average Charge Per Visit As Whole
Average Cost Per visit
Total Costs362000
Total Number of Visitors32900
Average Cost Per Visit11
Average Price Per Visit
Total Revenues350450
Total Number of Visitors32900
Average Price per Visit10.7

Appendix-2: Costs Allocations

Table-2.1: Allocated Costs for each Department

Cost Allocation
DepartmentExpenses
SalariesOtherAdministrationRentUtilitiesCleaning T&ERecord KeepingTotal
Yoga2833380006403360010006006250152055706
Aerobic Training13333150003013468013007801250304042396
Nutrition Counselling1333316000301310803001801500063849545
Seaweed/Mud Soaks30333600068551800500300625121647629
Weight Clinic28333800064033600100060042648362
Swimming83338000188364801800108045628032
Nautilus Workouts86671000019593960110066062576027730
Massage Therapy23333100005273360010006001250194547002
Administration18005003002600
Record Keeping158210803001803142
T&E3616432012007209856
Total1540008100040000360001000060002500010000362000

Table-2.2: Allocated Cost per Visit for Each Activity Department

Average Cost Per Visitor (Activity Department)
ActivityCost Per Visitor
Yoga                         11
Aerobic Training                            4
Nutrition Counselling                         24
Seaweed/Mud Soaks                         12
Weight Clinic                         35
Swimming                         19
Nautilus Workouts                         11
Massage Therapy                            7
Total Cost Per Visitor (Activity Department)                       123

Appendix-3: Factors Causing Deficit

Chart-3.1

Chart-3.2

Chart-3.3

Appendix-4: Pricing Strategy

Pricing Strategy
ActivityPrice ChargedPrice to be Charged Comments
Yoga10.711.70Increased
Aerobic Training10.74.45Decreased
Nutrition Counselling10.724.77Increased
Seaweed/Mud Soaks10.712.50Increased
Weight Clinic10.736.27Increased
Swimming10.719.62Increased
Nautilus Workouts10.711.65Increased
Massage Therapy10.77.71Decreased
Average Price Suggested 16.08

Appendix-5: Projected Income Statement

Projected Income Statement
 Average Price (Previous)Average Price (Suggested) Price per Department (Suggested)
Revenues from Client’s Fees385495582102400095
Other Revenues038549505821020400095
Expenses:
Program Services381042381042381042
Training and Education108411084110841
General and Administrative631639820063163982006316398200
Net Income (Net Loss) -12705 183902 1895
Profit Margin -3% 32% 0.47%

 

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