Acct 561 Snap Fitness Opportunity

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Snap Fitness Franchise Opportunity
November 28, 2011
Dr. Zeneo Williams, Ed. D., CFM

Snap Fitness Franchise Opportunity
Cost-Volume-Profit Analysis
The Cost-Volume-Profit analysis (CVP) for Snap Fitness provides an evaluation of its profits as costs and volume changes. As the owner of a Snap Fitness franchise, decisions about selling prices, product mix, and maximizing the use of the fitness center depends on CVP. A CVP analysis classifies cost as variable and fixed, and calculates a contribution margin. Relevant information identified in the analysis is the total monthly fixed costs of Snap Fitness, which are $6,000. Monthly fixed operating costs are $4,000 and monthly lease equipment costs are $2,000. The fitness center charges $26 as a monthly fee with no annual contract and management needs to retain 300 members to break-even. The amount of variable costs to break-even is $1,800:

CVP Income Statement
For the Month Ended November 30, 2011
Sales ($26*300)$7,800$26
Variable expenses-1, 800 -6
Contribution Margin $6,000 $20 Fixed expenses-6,000
Net income 0
A break-even analysis for Snap Fitness will show the manager the point at which the company will realize no income but will suffer no loss. The process of finding the break-even point will help the company decide if they need to change their monthly fees, depending on the amount of variable costs incurred during the month: Sales=variable costs+fixed costs+net income at $7,800=$1,800+ $6,000+0 Snap Fitness should sell 300 memberships to break-even. In sales dollars, sales are $7,800. The contribution margin technique gives the company the number of memberships: Fixed costs/Contribution margin per unit=Break-even point in units at $6,000/$20=300 The contribution margin per unit tells the manager that for every membership they sell, Snap Fitness has $20...
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