Acct 561 Snap Fitness Opportunity
Snap Fitness Franchise Opportunity
ACC561
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
ACC561
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
References: Kimmel, P.D., Weygandt, J.J., & Kieso, D.E. (2009). Accounting: Tools for business decision making (3rd ed.). Hoboken, NJ: John Wiley & Sons. Snap Fitness. (n.d.). Retrieved November 22, 2011, from Snap Fitness: http//www.snapfitness.com/corporate/franchise-opportunities