ACC 561 - Week 5 CVP and Break-Even Analysis (snapfitness)

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Review the case study posted to the week five projects thread and write a paper between 1,000 and 2,000 words addressing the following:
Part 1:  Respond to the questions incorporated with the case study.  
Part 2:  Assume your team decides to invest in the business. Prepare a variable costing income statement using monthly projections for revenue and expenses.  In order to support your findings, include a list of all assumptions, issues, and factors directly or indirectly related to your conclusions. Complete sections (1) and (2) from the case study a second time using your team's projections of sales volume, variable expenses, and fixed expenses.
Format the paper consistent with APA guidelines.  In addition to the paper, include an Excel spreadsheet that supports all numbers and calculations. Submit the paper, spreadsheet, and plagiarism review file via the assignment files tab.
 
 
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 ($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 (Sections 1 - 4):
 
Section 1:  Suppose that Snap Fitness estimates that each location incurs $5,000 per month in general fixed operating expenses and $1,000 to lease equipment.  Mixed costs are equal to $500 per/month (fixed) plus $1 per membership sale (variable). Total variable costs were 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.  Members pay on a monthly basis. Using the information provided above, and your knowledge of CVP analysis, estimate the amount 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 1, section 1, what would monthly sales in members and dollars have to be to achieve a target net income of $15,000 for the month?
 
Section 3:  Provide several examples of variable costs and fixed costs for a fitness center. Discuss how a fitness center's cost structure, relevant range, margin of safety, cost behaviors, and CVP apply to the case study.  How do you plan to use this in order to manage the business and plan for profitability? What type of internal accounting reports would you like to review in order to help you make informed decisions?
 
Section 4:  Go to a competitor's internet site and find information about purchasing their franchise. Summarize the pertinent information required to make an informed investment decision.  Which franchise do you believe is a better business opportunity? Explain your answer.
 
Part 2:  See CVP and Break Even Analysis project instructions for further details.
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