Instructions: (a) Suppose that Snap Fitness estimates that each location incurs
ID: 2387864 • Letter: I
Question
Instructions:(a) Suppose that Snap Fitness estimates that each location incurs $4,000 per month in fixed operating expenses plus $2,000 to lease equipment. A recent newspaper article describing no-frills fitness centers indicated that a Snap Fitness site might require only 300 members to break even. 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 and the equipment lease.)
(b) Using the information from part (a), what would monthly sales in members and dollars have to be to achieve a target net income of $10,000 for the month?
(c) Provide five examples of variable costs for a fitness center.
(d) Go to a fitness-business website such as Curves, Snap Fitness, or Anytime Fitness, and find information about purchasing a franchise. Summarize the franchise information needed to decide whether entering into a franchise agreement would be a good idea.
Explanation / Answer
I think you have missing information regarding monthly fees (assuming $26 to solve the question). In case the fees differs from my assumption, you need to modify the answer accordingly.
a)
Fixed cost $4,000 + $2,00 = $6,000
Contribution per member = $6,000 / 300 = $20
Variable cost = $26 - $20 = $6
(b) Using the information from part (a), what would monthly sales in members and dollars have to be to achieve a target net income of $10,000 for the month?
Monthly Sales(members) = ($6,000 + $10,000)/$20 = 800 members
Monthly Sales(dollars) = ($6,000 + $10,000)/$20 = 800 members x $26 = $20,800
(c) Provide five examples of variable costs for a fitness center.
Utility Cost
Laundary Services
Credit Card Processing
Instructor Salary
Payroll Taxes
d) Summary of Franchise offer from Snap Fitness
1) Start Turning a Profit Sooner Rather than Later
2) Sales and marketing support including a national marketing and public relations campaign
3) IT and administration / management systems
4) Equipment supply and maintenance
5) Club fit out and signage
6) Full training via an intensive four day Snap University course provided free to all franchisees and
managers
7) Ongoing support and training from Snap Fitness' corporate team
8) Initial investment starts at $300 - $350,000
Since Snap fitness is a reknown fitness centre and the initial investment is a slow as $300, entering into a franchise agreement with them would definitely be a good idea.