Case Study:Many of you will own your own business. One rapidly growing opportunity is no-frills workout centers. These types of centers attract customers who want to take advantage of state-of-the-art fitness equipment but do not need the other amenities of full-service health clubs. One way to own your own fitness business is to buy a franchise. Snap Fitness is a Minnesota-based business that offers franchise opportunities. For a very low monthly fee ($24, without an annual contract) customers can access a Snap Fitness center 24 hours a day. Start-up costs range from $60,000 to $184,000. This initial investment covers the following pre-opening costs: franchise fee, grand opening marketing, leasehold improvements, utility/rent deposits, and training.Part 1, Section 1: Suppose that Snap Fitness estimates that each location incurs $4,500 per month in general fixed operating expenses and $900 to lease equipment. Mixed costs are equal to $600 per/month (fixed) plus $1 per membership sale (variable). Total variable costs were not provided. A recent newspaper article describing no-frills fitness centers indicated that a Snap Fitness site might require only 315 members per month to break even. Members pay on a monthly basis. Using the information provided above and your knowledge of CVP analysis, estimate the amount of variable costs. (When performing your analysis, assume that the only fixed costs are the estimated monthly operating expenses, equipment lease and the fixed part of the mixed costs.) Explain the results in the paper. Part 1, Section 2: Using the information from section 1, what would monthly sales in members and dollars have to be to achieve a target net income of $17,000 for the month? Explain the results in the paper. How will you use break even analysis to manage your franchise?Part 1, Section 3: Provide several examples of variable costs and fixed costs for a fitness center. Discuss how cost structure, relevant range, margin of safety, cost behaviors, and CVP apply to the case study. How do you plan to use this in order to manage the business and plan for profitability? What type of internal accounting reports would you prepare? Why?Part 1, Section 4: Go to a competitor’s internet site and find information about purchasing their franchise. Summarize the franchise data so your team can make an informed business decision regarding your potential investment in Snap Fitness. Which franchise do you believe is a better business opportunity? Explain your answer.Part 2: Assume your team decides to invest in the business. Prepare a variable costing income statement in Excel using monthly projections for revenue and expenses. Include a list of assumptions used to support the numbers incorporated with the income statement. Calculate the break-even point in dollars and number of members. Calculate the margin of safety. Incorporate the results of your analysis with the paper.Review the case study posted to the week five projects thread and write a paper between 1,000 and 2,000 words addressing the following:Part 1, Sections 1-4: Respond to the questions incorporated with the case study. Part 2: Assume your team decides to invest in the business. Prepare a variable costing income statement in Excel using monthly projections for revenue and expenses. Include a list of assumptions used to support the numbers incorporated with the income statement. Calculate the break-even point in dollars and number of members. Calculate the margin of safety. Incorporate the results of your analysis with the paper.Format the paper consistent with APA guidelines. Submit the paper, spreadsheet,Most of it has been completed Just need it put together.
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Running head: CVP AND BREAK EVEN ANALYSIS
CVP and Break Even Analysis
Team C
ACC/561
1
2
CVP AND BREAK EVEN ANALYSIS
CVP and Break Even Analysis
Section 1
Total fixed costs = Monthly operating expenses +
equipment lease + Fixed mixed costs
= 4500+900+600
= 6000
Sales = members* contribution fee per each
= 315*24
= 7560
Variable costs = sales -fixed costs
= 7560-6000
= 1560
Variable cost per member = 1560/315
= 4.9523
Section 2
Contribution per member = sales-variable cost
= 24-4.9523
= 19.0477
Monthly sales in members = (fixed costs + desired profit)/contribution
= (6000+17000)/19.0477
=1.207 members
Monthly sales in dollars = 1,207 members*$24
=$28,968
Planet Fitness; fitness competitor, could be a successful comparison in helping decide if
investing in Snap Fitness is worth it. Planet Fitness is a New Hampshire based fitness center that
also offers franchising opportunities. Like Snap with the monthly fee of $24 (without an annual
contract), PF customers have an option of either a $10/month or $22/month option that gives
different features customers can utilize (PFIP, LLC, 2018). Planet Fitness’s franchise fee is
$10,000 for a 10-year renewable agreement. The total investment ranges from $700,000 to $3.8
Million. Franchisees must also pay a 5% ongoing royalty fee on all sales to Planet Fitness. To
open a gym, a franchisee must have of $3 million with $1,500,000 in liquid assets. To open an
“area” (consisting of at least five gyms), a net worth of two million with $800,000 in liquid
assets (FranchiseHelp Holdings, LLC, 2018). Snap Fitness’ startup costs on the other hand, range
from $60,000 to $184,000 – covering pre-opening costs: franchise fee, grand opening marketing,
leasehold improvements, utility/rent deposits, and training
Looking at the cost of startup for both fitness centers, it looks like Planet Fitness would
be the better business opportunity. As of September 30, 2018, Planet Fitness had approximately
12.2 million members and 1,646 stores in 50 states, the District of Columbia, Puerto Rico,
Canada, the Dominican Republic, Panama and Mexico. More than 95% of Planet Fitness stores
are owned and operated by independent business men and women (Planet Fitness, INC, 2018).
Snap Fitness provides in-house financing to qualified applicants; however, the qualifications to
franchise are only $75,000 in liquid assets, $250,000 net worth, and $75,000 in combined
household income (Snap Fitness, Inc, 2018).
References
FranchiseHelp Holdings, LLC. (2018). Planet Fitness Franchise. Retrieved from Franchise
Help: https://www.franchisehelp.com/franchises/planet-fitness/
PFIP, LLC. (2018). Memberships. Retrieved from Planet Fitness: https://www.planetfitness.com/
Planet Fitness, INC. (2018, November 14). Planet Fitness, Inc. Announces Accelerated Share
Repurchase Program. Retrieved from Planet Fitness:
http://investor.planetfitness.com/investors/press-releases/press-releasedetails/2018/Planet-Fitness-Inc-Announces-Accelerated-Share-RepurchaseProgram/default.aspx?_ga=2.148991294.942954467.1544390296504871510.1544390296
Snap Fitness, Inc. (2018). A Healthy Investment. Retrieved from Snap Fitness:
https://www.snapfitness.com/us/franchise-investment/
Part 1, Section 3
Fitness center
Variable cost
1.
2.
3.
4.
5.
6.
7.
Electricity
Water
Payroll
Advertising
Cleaning cost
Training
Lease hold Improvements
Fixed cost
1.
2.
3.
4.
5.
Rent
leased equipment
Operating expense
Membership cost
Franchise fee
For Snap fitness the cost structure consists of the preopening cost such as franchise fee, grand opening
marketing, leasehold improvements, utility/rent deposits, and training. To achieve profitability, it is
imperative for Snap fitness to analysis the preopening cost and determine which cost are fixed and
which cost are variable.
Snap fitness construct a budget of relevant range that they should spend no more than $4,500 on
operating and $900 to lease equipment. Mixed cost is equal to $600 per month plus $1.00 per
membership sale. But if Snap fitness fixed operating expenses of $4,500 per month for production
amount exceeds the current monthly expense then the operating cost will increase.
Margin of Safety is revenue that is left over after companies pay their variable costs linked with
producing the goods or services. Margin of Safety = Actual Sales – Break Even Point. If the margin of
safety is high, then there is a risk of business loss.
The three forms of Cost behavior are fixed, variable and mixed cost. Snap Fitness fixed cost is from
general fixed operating expenses, lease equipment, and mixed most each month. The cost behavior
formula is Y = fixed cost + variable + the production level. The cost behavior helps a business to plan and
control business cost.
The CVP is found by taking the price per unit and then multiplying it by the number of units sold. The
CVP analysis help an organization to determine the changes in fixed and variable cost, sales capacity and
charges and how it affects that company’s profits.
Internal reports are repetitive report ran periodically to have a review analysis of the business
Types of Internal reports for Snap Fitness are Operating reports (track operation), Sales report (track
sales), Payroll report that shows that budget the salary and wages of each employee and Production
cost report (track production). All these reports are imperative to determining a business financial and
performance health.
Snap Fitness
123 Main Street
Danville, Virginia
Variable Costing Income Statement
Sales Revenue
Members
Contribution
Total
315
24
7,560
Variable Costs and Expenses
Payroll
Utilities
Advertising
Cleaning
Variable Costs
Variable Cost per member
Contribution Margin per member
1,050
300
100
110
1,560
4.952381
19
Fixed Costs and Expenses
Monthly Operating Expenses
Equipment Lease
Fixed Mixed Costs
4,500
900
600
Total
6,000
Break Even Point
315
Margin of Safety
7,560
This Photo by Unknown Author is licensed under CC BY
Running head: CVP AND BREAK EVEN ANALYSIS
CVP and Break Even Analysis
Team C
ACC/561
1
2
CVP AND BREAK EVEN ANALYSIS
CVP and Break Even Analysis
Section 1
Total fixed costs = Monthly operating expenses +
equipment lease + Fixed mixed costs
= 4500+900+600
= 6000
Sales = members* contribution fee per each
= 315*24
= 7560
Variable costs = sales -fixed costs
= 7560-6000
= 1560
Variable cost per member = 1560/315
= 4.9523
Section 2
Contribution per member = sales-variable cost
= 24-4.9523
= 19.0477
Monthly sales in members = (fixed costs + desired profit)/contribution
= (6000+17000)/19.0477
=1.207 members
Monthly sales in dollars = 1,207 members*$24
=$28,968

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