Snap Fitness

Snap Fitness
Victor Aldana, Susan Schunke, Jairam Singh, Theresa Wheaton
ACC 561
May 30, 2013
Dale Stoeber

Snap Fitness
A good business owner or manager knows their business is only going to do well if costs are managed and known, and income is maximized. A smart business owner knows the same thing, but knows how to price their product or service to not only maximize potential income, but price it in relation to their fixed and variable costs. In the case of a fitness center like Snap Fitness, certain fixed costs like rent or royalty fees need to be absorbed regardless of the number of customers. Variable costs, however, borne in relation to the number of customers, will vary as membership changes from month to month. Thus incorporating a solid CVP analysis will allow a smart business owner to ensure their profitability goals are being met.
A cost-volume-profit-analysis is needed to show whether Snap Fitness is making a profit or not. Decisions about selling prices, product mix, and maximizing the use of the fitness center depend on CVP. The analysis will calculate variable and fixed costs as well as a contribution margin. Each location incurs fixed operating expenses of $4000 with an additional $2000 for the lease agreement - adding these together equals $6000 in total fixed costs. Members contribute a monthly fee of $26 for use of the gym for 24/7 and promotional advertising of Snap Fitness leads franchisees to believe they may only need a total of 300 members to break even. Broken down, this is the CVP formula: total monthly fixed costs equal $6,000 ($4,000 operating expenses plus $2,000 to lease equipment), 300 members multiplied by $26 per month gives the Snap Fitness break-even point of $7,800. The $7,800 break-even point lets one calculate the variable costs using the formula; Sales=Variable Costs + Fixed Costs + Net Income.
Variable cost expenditures are those that vary operating a business. The variable costs for Snap Fitness include utilities,...