Submitted by: Submitted by jwmims
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Category: Business and Industry
Date Submitted: 05/14/2012 11:42 AM
CVP and Break-Even Analysis
Snap Fitness is a fast-growing franchisor of compact fitness centers (Snap Fitness, 2011). An opportunity has come to open a local franchise; however, before making such a commitment it would be prudent to ensure the center will be successful. Cost Volume Profit (CVP) and Break-Even analysis are two effective methods a person can use to determine the most profitable combination of costs, price, and volume. These two methods are critical in making the right choice on whether or not to open a franchise.
Following are a CVP and Break-Even analysis that will show the amount variable costs, amount of memberships to break-even, types of variable costs the franchise may incur, information regarding a Snap Fitness franchise, and a recommendation on whether or not opening a franchise would prove profitable.
Variable Costs Amounts
Monthly Sales
Snap Fitness would need to achieve 800 memberships to generate a monthly net income of $10,000.
Snap Fitness Variable Cost Types
Variable costs are costs that vary in total directly and proportionately with changes in the activity level. If the level increases 10%, total variable costs will increase 10%. If the level of activity decreases by 25%, variable costs will decrease 25%. Variable costs include direct materials and direct labor, costs of goods sold, and sales commission. A variable cost may also be defined as a cost that remains the same per unit at every level of activity (Kimmel, Weygandt, & Kieso, 2009).
Variable costs for Snap Fitness can membership sales. Active memberships are important in determining how much revenue the fitness center can bring in monthly. Snap Fitness does not have an enrollment fee or contract, their standard membership fee of $26.00 will easily generate new customers. In addition to becoming a member, a customer can have a personal trainer for additional monthly costs. This cost will vary according to how often the customer wants to utilize the service....