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ACC 561 Week 5 CVP And Break-Even Analysis Paper.doc

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CVP and Break-Even Analysis Paper
Team A
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ACC 561
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Snap Fitness is a company that offers franchise opportunities that capitalize on the needs
of consumers to provide an equipped and convenient place to exercise while saving them money
and time by offering the option to add desired or remove undesired services. Within this paper,
the prospect of operating and purchasing Snap Fitness will be considered by evaluating
contribution margin income statements. Break-even analyses and cost-volume-profit (CVP) and
the variable costs affiliated with a fitness center’s operation will be evaluated. Lastly, this paper
will determine if the venture to open a Snap Fitness would be profitable and what steps should be
taken to open a Snap Fitness franchise.
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.)
[Cost volume profit analysis (CVP analysis) is one of the most powerful tools that
managers have at their command. It helps them understand the interrelationships between cost,
volume, and profit in an organization by focusing on interactions among the following five
elements: (1) Prices of products (2) Volume or level of activity (3) Per unit variable cost (4)
Total fixed cost (5) Mix of product sold.] (Accounting Management, 2012; Accounting
Management, 2012)
Snap Fitness estimates that each location incurs $4,000 per month In fixed operating
expenses plus $2,000 to lease equipment. The total variable cost for Snap Fitness is $6,000 per

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month.
SNAP FITNESS
VARIALBE COSTS
Operating Expense $4,000
Leased Equipment $2,000
Variable Costs $6,000
The variable costs that Snap Fitness faces can be controlled by monitoring the variable
expenses that Snap incurs each month. If Snap’s operating, expenses consist of a building lease,
electricity, water, and employees to run the operation. You can lower this cost by either lowering
the rent on the building, find more cost efficient ways to provide electricity to power the
equipment, or lowering the amount of employees you have on staff. You could also lower the
variable costs for the company by finding a cheaper vendor to lease your equipment. [Because
cost-volume-profit (CVP) analysis helps, managers understand the relationship among cost,
volume and profit it is a vital tool in many business decisions. These decisions include, for
example what products to manufacture or sell, what pricing policy to follow, what marketing
strategy to employ, and what type of productive facilities to acquire.] (Accounting Management,
2012) By using CVP analysis Snap Fitness will be able to set their price for membership,
determine the amount of employees they can afford to employ, and determine their breakeven
membership level for the month and year.
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?
If $10,000 is the amount the franchise aims to meet as its monthly net income target,
there would need to be a membership count of 800 at $26 per membership. This would add up to
a total income amount of $20,800. With the variable totals of $4800 (6 per unit), a contribution

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