Question

An Al Ain based Gym/Fitness company has fixed costs of 50,000 AED. /month and a variable costs of 20 AED/per fitness class member. The company currently charges 120 AED for each fitness class member and has in total 800 members taking classes per month. The Gym can accommodate maximum up to 2000 members The Gym wants to raise the class charge to 150 AED to cover enhanced features such as new music and energy drinks which will increase the variable cost by 25 percent. a. Determine the break-even quantity in terms of members b. Determine the total income revenue) from the break-even membership c. Determine the percentage of total capacity at the break-even point. 4. Determine the new breakeven point if enhanced features of 10% included the break-even quantity in terms of members. A 400 members the total income (revenue) from the break-even membership B. 500 members the percentage of total capacity at the break-even point C 650 members new breakeven point if enhanced features of so included 0.350 members E. 80.000 AED F. 60,000 AED H.BOX

Answer 1

(a)

Breakeven quantity = FC / (P - AVC) = 50,000 / (120 - 20) = 50,000 / 100 = 500 members

(b)

Total income = Breakeven quantity x P = 500 x 120 = 60,000 AED

(c)

% of capacity = 500 / 2000 = 0.25 = 25%

(d)

New AVC = 20 x 1.25 = 25

New Breakeven quantity = FC / (New P - New AVC) = 50,000 / (150 - 25) = 50,000 / 125 = 400 members