Cost-Volume-Profit And Break-Even Analysis: Snap Fitness

Cost-Volume-Profit and Break-Even Analysis
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ACC/561
October 12, 2011
Andrea Dixon
Cost-Volume-Profit and Break-Even Analysis
Snap Fitness Owning a business is an expensive and risky venture, but buying a franchise is one way to lower the risk and build confidence in the success of that new business. As a ‘no-frills’ type of fitness center, Snap Fitness offers its customers convenient, 24-hour access, hassle-free work outs without an annual contract. The company offers assistance in site selections, the build out and design of the gym, in-house financing, franchisee training sessions, and continued training support to promote successful franchise operations (Snap Fitness, 2011).
Snap Fitness Costs The initial investment
Total variable costs are $12,810 per month. To earn a target net income of $10,000, $28,810 is required in sales.
Required Sales = Fixed Costs + Variable Costs + Target Net Income
$28,810 = $6,000 + $12,810 + $10,000 The current monthly fee to join Snap Fitness is $26 with no annual contract. Dividing required sales by $26 results in the amount of members needed to achieve a target net income of $28,810: 1108 members. $26 per month is very inexpensive compared to many other gyms so this franchise location could afford to raise its cost per month to join. If this is a set amount required by the Snap Fitness Corporation other income also can be earned from merchandise sales and beverage and nutritional food sales.
Variable Costs Costs faced by any company can be broken into two main categories: fixed costs and variable costs. The fitness center has variable costs that vary with output. Labor, security, electricity, water, marketing supplies, and miscellaneous expenses are types of variable
Supplies and expenses are a heavy percentage of the variable costs allocated within the company. This may include professional services, fees, insurance, materials, etc. In order for a company to run smoothly, these variable costs are essential if the fitness center wants to succeed.

Examples of Fitness Center Variable Costs
Variable costs are costs that vary in total directly and proportionately with changes in the activity level (Kimmel, Weygandt, & Kieso, 2009). The more fitness customers Snap Fitness has, the more variable costs will increase. By knowing and controlling variable costs, Snap Fitness will be able to achieve a higher profit margin. Five examples of variable costs for a fitness center would be: • Utilities like Electricity to run the various mechanical fitness machines. • Hourly wages and commission on sales of health food and products. • Cost of supplies like paper, pens, printer ink, bathroom supplies. • Shipping and delivery charges for supplies and inventoried