Rosemary Worth was talking about the consequences of a theft that had recently occurred at the bu… Assignment Help


Rosemary Worth was talking about the consequences of a theftthat had recently occurred at the business she owned, PrivateFitness, LLC. Private Fitness was a small health club located inRancho Palos Verdes, California, an upscale community located inthe Los Angeles area. The club offered personal fitness trainingand fitness classes of various types, including aerobics, spinning,body sculpting, air boxing, kickboxing, hip hop, step & pump,dynamic stretch, Pilates, and yoga. Personal training clients paid$50 per hour for their instructor and use of the club during primetime. During slower times (between 9:00 a.m. and 4:00 p.m.) theprice was $35 per hour. The price per student for each hour-longfitness class was $12. Some quantity discounts were offered toclients who prepaid. Unlike the large health clubs, Private Fitnessdid not offer memberships for open access to fitness equipment andclasses. Prior to starting Private Fitness, Rosemary had beenworking as an aerobics instructor and fitness model. She had wonmany local fitness competitions and was a former finalist in theMs. Fitness USA competition. She wanted to go into business forherself to increase her standard of living by capitalizing on herreputation and knowledge in the growing fitness field and to havemore time to spend with her two young children. Private Fitness hadbeen operating for six months. To open the club, Rosemary had touse almost all of her personal savings, plus she had to take out abank loan. The building Rosemary rented, located in a convenientstrip mall with ample parking, had formerly been operated as afresh food market. Rosemary spent about $150,000 to renovate thefacility and to buy the necessary fitness equipment. The club wascomprised of five areas: an exercise room, a room containingaerobic equipment (e.g., treadmills, stair climbers, stationarybicycles, cross country ski machines), a room containing weightmachines and free weights, men’s and ladies’ locker rooms, and anoffice. Rosemary contracted with five instructors whom she knew torun the classes and training sessions. The instructors were allcapable of running personal training sessions, but they each tendedto specialize in teaching one or two types of fitness classes.Rosemary herself ran most of the spinning classes and some of theaerobics classes. The instructors were paid on commission. Thecommission, which ranged between 20 percent and 50 percent ofrevenue, varied depending on the instructor’s experience and onwhether the instructor brought the particular client to PrivateFitness. As manager of the business, Rosemary hired Kate Hoffman,one of the instructors and a long-time friend. Kate’s primary tasksincluded marketing, facility upkeep, scheduling of appointments,and record keeping. Kate was paid a salary plus a commission basedon gross revenues. During normal business hours when Kate wasteaching a class, one of the other instructors, or sometimes apart-time clerical employee, was asked to staff the front desk inreturn for an hourly wage. Private Fitness was open from 5:30a.m.–9:00 p.m., Page 455Monday through Friday. It was also openfrom 6:00 a.m.–noon on Saturday and noon–3:00 p.m. on Sunday.Rosemary was still in the process of building the volume necessaryto operate at a profit. Typically one or two private fitnessclients were in the facility during the prime early morning andearly evening hours. A few clients came in at other times. Classeswere scheduled throughout the times the club was open. Some ofthese classes were quite popular, but many of them had only one ortwo students, and some classes were cancelled for lack of anyclients. However, Kate’s marketing efforts had been proving to beeffective. The number of clients was growing, and Rosemary hopedthat by the end of the year the business would be earning a profit.As the quote cited above indicates, however, Rosemary graduallyrealized that Kate Hoffman was stealing from the club. One timewhen Rosemary came to the club she noticed $60 in the cash drawer,but she noticed when she was leaving that the drawer contained only$20. She asked Kate about it, and Kate denied that there had been$60 in the drawer. Rosemary wondered if other cash amounts haddisappeared before they had been deposited into the bank. Whilesome clients paid by credit card or check, others, particularlythose attending fitness classes, often paid with cash. Rosemarybecame very alarmed when, during a casual conversation with one ofthe other instructors, the instructor happened to mention toRosemary some surprising “good news.” The good news was that Katehad brought in a new private fitness client who was working out inthe 1:00–2:00 p.m. time period on Monday, Wednesday, and Friday.Kate was doing the training herself. However, Rosemary checked therecords and found no new revenues recorded because of this newclient. She decided to come to the club during the 1:00–2:00 hourto see if this client was indeed working out. Since the client wasthere and no revenue entry had been made, she confronted Kate.After first explaining that she had not yet gotten around to makingthe bookkeeping entry, Kate finally admitted that this client hadbeen writing her checks out to Kate directly, in exchange for adiscount. Kate said that she was very sorry and that she wouldnever be dishonest again. Rosemary realized she had two majorproblems. First, she had to decide what to do with Kate. Kate was avaluable instructor and a long-time friend, but her honesty was nowin question. Should she forgive Kate or fire her? Second, Rosemaryalso realized that she had an operating problem. She did not wantto step in and assume the managerial role herself because she hadsignificant family responsibilities to which she wanted to be ableto continue to attend. But how could she ensure that her businessreceived all the revenues to which it was entitled without beingon-site at all times herself?Questions: Provide at least 2 pros and cons for each ACA.ACA 1: Kate will continue to be the Manager and one of thefitness trainers of the businessACA 2: Rosemary will fire Kate as the manager,but will still bethe fitness trainer, and Rosemary will act as the Manager of thebusiness ACA 3: Rosemary will fire Kate as the manager, but willstill be the fitness trainer, and Rosemary will hire someone to bethe business managerACA 4: Change in business model

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