Break-Even Analysis

Break-Even Analysis

CVP and Break-Even Analysis
A CVP Analysis will classify the cost as variable and fixed, and calculates a contribution margin.   Information in the analysis is the total monthly fixed costs of Snap Fitness, which are $6,000.   Monthly fixed Operating costs are $4,000 and leasing equipment costs are $2,000.   The center charges a monthly fee of $26 with no contract.   Management needs to retain 300 members to break-even The variable costs to break-even is $1,800.
CVP Income Statement
For the month Ended of June 30, 2012
Sales (26*300) $7,800
Variable Expenses -1, 800
Contribution Margin $6,000
Fixed Expenses -6,000
Net Income 0
Once the monthly break-even amount of $7,800 is determined, the variable costs can be calculated by inserting the fixed costs and break-even amounts into the formula Sales = Variable Costs + Fixed Costs + Net Income. Break-even occurs when Net Income equals zero (Weygandt & Kieso, 2009). Therefore, Variable Costs = Sales – Fixed Costs – Net Income. Stated another way from a break-even point perspective, Variable Costs = $7,800 (Sales) - $6,000 (Fixed Costs) - $0 (Net Income). This is a good estimate for Variable Costs is $1,800 per month ($7,800 - $6,000).
Variable Cost
Fitness centers are great starter businesses as they are inexpensive to open and maintain as cost is based on location. Fitness centers have fixed costs that are correlated to its businesses structure. Building rental, insurance, and equipment rental are fixed cost. As far as variable costs are concerned, you have laundry services for the towels that must be washed after members use them after there workout. In order for the whole operation to work utility cost are considered a variable cost as based off usage of machines and members attendance. The fewer members showing up the fewer towels need to be washed and machines operated. If attendance is low for members and it continues to become a trend, wages may...