# Cvp and Break-Even Analysis

Topics: Revenue, Costs, Decision making Pages: 2 (432 words) Published: February 24, 2012
CVP and Break-Even Analysis Paper
Learning Team B
Christina Sempasa
University of Phoenix
ACC/561
August 14, 2011
Ena Wu
CVP and Break-Even Analysis
Introduction
Section A – Identification of Variable Costs
Identifying an estimate of the variable costs is relatively simple, provided that other information related to fixed costs and break-even amounts are available. We know from the text that Snap Fitness has fixed monthly operating expenses of \$4,000. We also know that they have additional fixed costs associated with a monthly equipment lease. This brings the total monthly fixed costs to \$6,000. The text also tells us that Snap Fitness has a break-even point of 300 members and we know that each member pays \$26 per month for their membership. This brings Snap Fitness’ monthly break-even point to \$7,800 (300 members x \$26) (Weygandt & Kieso, 2009). Once the monthly break-even amount of \$7,800 is known, the variable costs can be calculated by inserting the fixed costs and break-even amounts into the formula Sales = Variable Costs + Fixed Costs + Net Income. Break-even occurs when Net Income equals zero (Weygandt & Kieso, 2009). Therefore, Variable Costs = Sales – Fixed Costs – Net Income. Stated another way from a break-even point perspective, Variable Costs = \$7,800 (Sales) - \$6,000 (Fixed Costs) - \$0 (Net Income). This tells us that a good estimate for Variable Costs is \$1,800 per month (\$7,800 - \$6,000). Section B – Identification of Sales and Required Monthly Membership Once monthly variable costs are known, it is possible to calculate the required sales to bring net income to \$10,000 per month. Required sales can be calculated using the same formula that determined variable costs. Knowing that Sales equals Variable Costs + Fixed Costs + Net Income, we can calculate the following information: •Sales = \$1,800 (Variable Costs) + \$6,000 (Fixed Costs) + \$10,000 (Desired Net Income) = \$17,800

Once we’ve determined that monthly sales would need to be...

References: Weygandt, J.J., & Kieso, D.E. (2009). Accounting: Tools for business decision making (3rd ed.). Hoboken, NJ: John Wiley & Sons

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