Question

All About You 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 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. This initial investment covers the following pre-opening costs: franchise fee, grand opening marketing, leasehold improvements, utility/rent deposits, and training. Instructions (a) Suppose that Snap Fitness estimates that each location incurs $4,000 per month in fixed operating expenses plus $1,460 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 $3,640 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.

Answer 1

Answer :

(a). Estimate the amount of variable costs

Fixed costs
Fixed costs ($4,000 + $2,000)	6,000
Contribution margin
Fixed costs	6,000
No of members	300
Contribution margin	20
Variable cost (Sales - Contribution margin
Sales	26
Contribution margin	20
Variable cost ($26 - $20)	6

(b).

Sales per month by members [(Net income + Fixed costs)/ No of members]
Net income	10,000
Fixed costs	6,000
	16,000
No of members	20
Sales per month by members	800
Sales per month by dollars [(Net income + Fixed costs)/ No of members*Selling price
Net income	10,000
Fixed cost	6,000
	16,000
No of members	20
sales per month by members	800
Selling price	26
Sales per month by dollars	20,800

(c) The five examples include

(1). Electricity costs

(2). Staff payroll

(3). Maintenance costs per day

(4). Cleaning costs per day

(5). Taxes etc..

(d). Curve $25,000 + Cost of Equipment

Snap fitness $ 109525 - $285620

(low) (high)

Any time fitness $ 46299 - $321899

Snap fitness in a better option as it provide a customization option to lower unnecessary cost and emential cost at a lower rate when componed to comes any time fitness