CVP and Breakeven Analysis Paper
CVP and Break-Even Analysis Paper
Learning Team A
ACC/561
Instructor
2013
CVP and Break-Even Analysis Paper When starting a business or buying a franchise it is critical for one to determine the star-up cost associated with the business. However, the most import item one must look at is the breakeven point. The breakeven point is important because it helps one plan out its activities to gives business owners an idea of the sales needed to cover its cost before one can make a profit. Within this paper, Learning Team A will examine the start-up cost and breakeven point for a Snap Fitness franchise owner.
Variable Costs “Snap Fitness estimates that each location incurs $4,000 per month in fixed operating expenses plus $2,000 to lease equipment, which brings at total of $6,000 in fix cost” (Kimmel, Weygandt & Kieso, 2009). However, in order for Snap Fitness to break even, it needs to have 300 members. With the “information provided above and our knowledge of CVP analysis, we will now estimate the amount of variable costs for Snap Fitness” (Kimmel, Weygandt & Kieso, 2009). The CVP analysis is important for Snap Fitness because “it is a critical factor in such management decisions as setting selling prices, determining product mix, and maximizing use of production facilities” (Kimmel, Weygandt & Kieso, 2009, p. 921). Variable cost “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%, and f the level of activity decreases by 25%, variable costs will decrease 25%” (Kimmel, Weygandt & Kieso, 2009, p. 914). However, according to Kimmel, Weygandt and Kieso “variable costs include direct labor, cost of goods sold, and sales commissions or a cost that remains the same per unit at every level of activity” (2009). The following information below provides one a snap shot of Snap Fitness’s CVP income statement in detail. Fixed Costs: $4,000
Learning Team A
ACC/561
Instructor
2013
CVP and Break-Even Analysis Paper When starting a business or buying a franchise it is critical for one to determine the star-up cost associated with the business. However, the most import item one must look at is the breakeven point. The breakeven point is important because it helps one plan out its activities to gives business owners an idea of the sales needed to cover its cost before one can make a profit. Within this paper, Learning Team A will examine the start-up cost and breakeven point for a Snap Fitness franchise owner.
Variable Costs “Snap Fitness estimates that each location incurs $4,000 per month in fixed operating expenses plus $2,000 to lease equipment, which brings at total of $6,000 in fix cost” (Kimmel, Weygandt & Kieso, 2009). However, in order for Snap Fitness to break even, it needs to have 300 members. With the “information provided above and our knowledge of CVP analysis, we will now estimate the amount of variable costs for Snap Fitness” (Kimmel, Weygandt & Kieso, 2009). The CVP analysis is important for Snap Fitness because “it is a critical factor in such management decisions as setting selling prices, determining product mix, and maximizing use of production facilities” (Kimmel, Weygandt & Kieso, 2009, p. 921). Variable cost “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%, and f the level of activity decreases by 25%, variable costs will decrease 25%” (Kimmel, Weygandt & Kieso, 2009, p. 914). However, according to Kimmel, Weygandt and Kieso “variable costs include direct labor, cost of goods sold, and sales commissions or a cost that remains the same per unit at every level of activity” (2009). The following information below provides one a snap shot of Snap Fitness’s CVP income statement in detail. Fixed Costs: $4,000
References: Accounting For Management. (2102). Cost volume profit relationship - (CVP Analysis). Retrieved April 8, 2013 from http://accounting4management.com/cost_volume_profit.htm Anytime Fitness. (2013). Franchise info. Retrieved April 7, 2013 from Rural Women’s Network. (2013). Rural women’s network. Retrieved April 8, 2013 from http://www.ruralwomen.org.uk/ University of Phoenix. (2013). Course Syllabus. Retrieved from University of Phoenix, ACC561-Accounting website