Many of you will someday 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 ($27, 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. Part 1:Section 1: Suppose that Snap Fitness estimates that each location incurs $5,000 per month in fixed operating expenses, $1,000 to lease equipment plus mixed costs equal to 500 per/month (fixed) plus $1 per membership sale (variable).
A total variable cost estimate was not provided. A recent newspaper article describing no-frills fitness centers indicated that a Snap Fitness site might require only 320 members to break even. Using the information provided above, and your knowledge of CVP analysis, estimate the number of variable costs. (When performing your analysis, assume that fixed costs include estimated monthly operating expenses, equipment lease and the fixed part of mixed costs.)
Section 2: Using the information from part (a), what would monthly sales in members and dollars have to be to achieve a target net income of $15,000 for the month?
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