July 16, 2012
Owning a business is a dream for many people and one way to obtain that dream is to take advantage of a franchise opportunity. Work-out centers are a rapidly growing business. “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”(Snap Fitness, 2012). The following paper will reflect information concerning owning a fitness center and benefits to an individual who seeks to own a business in this industry. Individuals across the country who want to be fit often join fitness centers and most people want a no commitment month to month membership. Snap Fitness offers memberships such as this at a reasonable cost.
The purpose of this paper is to describe Snap Fitness and identify cost-volume-profit analysis as well as break even analysis. Snap Fitness estimates each location will have $4,000 expense for fixed operating expenses and $2000 to lease equipment. In order for an individual looking to own a franchise such as Snap Fitness, in order to make a profit the business may only need 300 members. The paper will provide an estimate of variable costs, monthly sales in dollars and members will be identified to determine what is needed to achieve a target net income of $10,000 for the month. Five examples of variable costs for a fitness center will be identified and discussed. Lastly, the paper will discuss summarized information concerning purchasing a franchise and will conclude with a decision whether purchasing a fitness franchise is a wise decision or not.
CVP (Cost Value Profit) Analysis allows an investor to determine if an investment is profitable and at what point the total revenues are equal to the total costs (Kimmel, Weygandt, & Kieso, 2009). CVP are very basic analysis that provide a very quick and easy to ready snap shot analysis. CVP Analysis for Snap Fitness contemplates the connection between the volume of members of the fitness center, the monthly fee (no annual contract is needed), the variable costs encored, and the fixed costs. Snap Fitness will assess no sales mix as sales cannot be mixed when only one service is offered (Kimmel, Weygandt, & Kieso, 2009).
|Snap Fitness | |CVP Income Statement | |For the Month Ended June 30, 2012 | | |Total | |Sales (300 members X $26.00 monthly fee) |$7,800 | |Variable costs |$1,800 | |Contribution margin |$6,000 | |Fixed costs (monthly operating expenses + equipment lease |$6,000 | |Net Income | $-0- |
Variable costs are the operating cost that varies in direct proportion to the quantity of units either sold are produced (Kimmel, Weygandt, & Kieso, 2009). For the variable cost analysis it was assumed that the only fixed costs are the estimated monthly operating expenses of $4,000 and the equipment lease of $2,000 per month. In order to Break-even the Net income result for the below equation would be zero...
Please join StudyMode to read the full document