Cvp Analysis

Topics: Management accounting, Variable cost, Costs Pages: 4 (1206 words) Published: January 30, 2012
Snap Fitness
The unemployment rate in 2000 has more than doubled, and the urge for those unemployed to become business owners has taken precedence. As a result, Barack Obama and Joe Biden developed a plan for small business. The plan would result in the release of over one billion dollars to entrepreneurs that were looking to kick start their business venture (Barack Obama & Joe Biden, 2010). A franchise is “a form of business organization in which a firm already has a successful product or service enters into a continuing contractual relationship with other businesses operating under the franchises trade name in exchange for a fee” (Investor Words, 2011). Currently Team A is looking to enter a franchise contract with Snap Fitness. Based out of Minnesota, Snap Fitness offers potential franchise owners the opportunity to start up their own fitness center for $60,000-$184,000. This initial investment covers the following pre-opening costs: franchise fee, grand-opening marketing, leasehold improvements, utility/rent deposits, and training (Snap Fitness, 2011). Better known as entities, forms of business organizations are used to weigh the pros and con’s of entrepreneurship. Additional factors such as taxes, legalities, and business related concerns should be considered. More important, how ones business can break-even or be profitable should be of utmost concern. This paper covers break-even analysis, fixed costs, and variable factors of Snap Fitness franchise ownership. CVP Analysis

CVP analysis considers the relationship among volume or activity level, unit selling prices, variable cost per unit, total fixed costs, and sales mix. When managers know how costs will behave at specific levels of activity, they may prepare more accurate budgets as well as project how profitable products will be, it serves as an aid in making good business decisions. These statements are different from traditional statements in that they classify costs as variable or fixed and...
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