Week 4

CVP Analysis Snap Fitness

Randy Patino, Sary Elsleibi, and Summer Barakat

ACC/561

June 5, 2013

Professor Hackett

Cost Volume-Profit Analysis for Snap Fitness

Introduction

Randy Patino is a personal trainer, after pursuing his MBA degree he aspires to open his own full service Health Club. Sary and Summer, his team members read an ad offering a franchise for Snap Fitness health club and they both thought it would be the best way for their friend Randy. They are going to use the information given in the ad to carry out a cost volume-profit analysis (CVP) Analysis on the Snap Fitness Franchise. Estimate the variable costs, the break-even point, and the needed number of members and sales to achieve $10,000 net income. Finally they will visit the Snap Fitness Website get all the needed information for buying the franchise to help Randy decide whether or not to take this opportunity.

Purchasing a franchise in Snap Fitness makes the process of owning a health club a step closer for Randy. According to the website: “Economically, the health club industry has proven to be recession-proof, averaging an 8% annual growth rate since the early 1990’s across all health clubs and gyms,” (Fitness Franchise Opportunities, 2011). Franchising with this company provides entrepreneurs with a great opportunity. Since they started operating they have been providing customers and franchisees with many services and benefits:

* Can be easily operated with one employee.

* Affordable for the customer and the owner of the business.

* New employees and franchisees are trained.

* Snap Fitness has been operating for 3 years now with increasing numbers of members every year.

Estimation of Variable Costs

“Variable costs are costs that change in total directly and proportionately with changes in the activity level. The other type is fixed costs; these are costs that remain the same in total regardless of changes in the activity level” (Kimmel, Wedygandt, & Kieso,...