CVP and break-even analysis
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CVP and break-even analysis
This assignment is about CVP and break-even analysis. Your team should assume the role of prospective franchisees. Complete the BYP 19-7, below. Then write a paper using the outline below.
BYP19-7 Many of you will some day own your own business. One rapidly growing opportunity is no-frills workout centers. Such 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 ($26, without an annual contract) customers can access a Snap Fitness center 24 hours a day.
The Snap Fitness website (www.snapfitness.com) indicates that start-up costs range from $60,000 to $184,000. You can find updated amounts on the website for Snap Fitness. This initial investment covers the following pre-opening costs: franchise fee, grand opening marketing, leasehold improvements, utility/rent deposits, and training.
(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 per member. (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 the website for Snap 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.
Here is an outline you can follow for your team paper.
- Introduction. Your paper is about a franchise opportunity that you are considering. Talk about the company you are looking at, Snap Fitness. Briefly introduce the company, giving the company’s history, organizational structure. Then explain that the company grows and expands using franchising opportunities.
- Discuss how franchising works, from the perspective of the franchisor (Snap Fitness) and the franchisee (your team). Discuss the pros and cons of franchising. Based on a Google search of complaints about the Snap Fitness franchise opportunities, comment on the concerns you have, if you have any.
III. Present the financial information you have obtained, and perform your CVP analysis. Here would be a good point at which you show what variable cost per member is (you must calculate).
- Tell what you think about this opportunity. Based on the preceding parts of your paper, provide a recommendation. Would your team accept this opportunity or reject it. Explain your decision.
The paper should be between 1500 and 1800 w
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