Snap Fitness Cvp and Break-Even Analysis

Snap Fitness CVP and Break-Even Analysis

Elba Roark, Virginia Davis, Gloria Sanders, Florita Smith, Landry Cobb

ACC/561

April 23, 2012

Suzanne Adams

Snap Fitness CVP and Break-Even Analysis

Snap Fitness is a franchised fitness center that sells the franchised name to owners to help market to the consumer. Snap fitness allows the owner to use the Snap Fitness name and business model for a fee to the owner. The ownership of a Snap Fitness franchise fitness center is discuss through the CVP analysis and the breakeven point analysis, along with the variable costs that may be associated with the ownership of the franchise.

Snap Fitness Costs

Snap Fitness Centers, like most businesses, have costs that need to be cover to continue operation. Snap Fitness estimates that each location has $4000 per month in fixed operation expenses and $2000 to lease the equipment needed from the business model. The fixed operations expenses include building lease, utilities costs, and other costs that do not change. The equipment lease may include treadmills, free weights, and stationary bikes.

Cost Volume Analysis

Cost Volume Analysis is the analysis of the effects of a change in cost and volume of an organization’s profits. This analysis is vital in profit planning as well as strategic planning. Cost Volume Analysis is helpful to managers in decision-making such as setting prices, determining the product mix, and the maximized use of production (Kimmel, Weygandt, & Kieso, 2009). The basics of a CVP is to analyze the behavior of costs and revenues, which are linear through the relevant range, costs are classify accurately as a variable or fixed cost, and the changes that the factors that will affect costs (Kimmel, Weygandt, & Kieso, 2009).

Variable Costs

The challenge for Snap Fitness is to estimate the cost for operating a 24- hour Fitness Center and the expenses of the operation. The variable costs and fixed costs will estimate with the monthly expenses in mind, along with the leasing of equipment.

The formula for a Cost Volume Analysis is:

Sales = Variable Costs + Fixed Costs + Net Income =$0

($26 * 300) + Variable Costs + ($4,000 +$2,000) + 0)

$7,800 = Variable Cost + $6,000 + 0

$1,800 = Variable Costs

$ 1,800/300 = $ 6/member

Variable Costs for Fitness Centers

Fitness centers have