Free Custom «CVP and BEP Analysis» Essay Paper

a)Total cost of opening up = $ 60,000 + $ 184,000 = $ 244000

Fixed operating costs $4,000 and lease equipment cost $2,000 per month.

Total fixed cost = $ 6,000

At breakeven point unit there are 300 individuals.

Total revenue = 300 * $ 26 = 7800

CVP analysis formula = Px = Vx + FC + Profit (Rajasekaran, 2010)

P is price per unit;

 V is variable cost per unit;

 x are total number of units produced and sold; and

 FC is total fixed cost

Variable cost = Px – FC = $ 7,800 - $ 6,000=$ 1800 (Assuming that the profit is zero)

b) Variable cost per unit = $ 1800/ 300 = $ 6

Px = $10,000/300 = $ 33.33 = 33.33x = 6x + 6,000

$33.33x – $6x = $ 6,000 = $27.33x = $ 6,000

X = 219.54 = approximately 220 members.

Examples of variable costs for a fitness center

In the carrying out of any business, there are costs incurred, the management of these costs is a one imperative aspect of managing financial resources in an organization in order to make a profit. These costs can be divided into either fixed or variable cost. Variable costs are the costs that change depending on output in terms of services offered there are several examples of these costs in fitness centers as it offers health exercise programs including aerobics and cycling. Labor cost is one example of a variable cost as the fitness center needs more staff to work due to an increase in the clients who utilize the facility therefore; during peak seasons, the variable costs recorded are higher as compared to the low peak season (Fried, Shapiro & DeSchriver, 2008). Another variable cost is overhead cost that comprise of mortgage, electricity, depreciation on fixed asset and machine maintenance costs. Variable costs also consist of salaries and wages paid to employees who work in the fitness center besides marketing expenses.

How to purchase a franchise

There are several ways an individual can undertake to own a fitness center at the Curves franchise one of the one of the leading fitness franchises there exist several attractive franchising opportunities to offer. As franchisees, there are two ways; one can buy a franchise of the fitness franchise. The first option is the sports and fitness business that either could be a new franchise territory with no curves operations or opt to buy an existing curve that is operation and under the ownership of some other franchisee owner (Curves, 2011). As a franchise, Curves offers thirty minutes exercise program that exclusively caters for women with the proceeds from undertaking the sports and fitness business being on the services offered.

Unlike other businesses, the business model of the fitness franchise focuses on maximizing the return on investment. On the other hand, Curves buying terms also differ as it is based on the location. An added advantage is that the franchise offers an opportunity of payroll expenses reduction through the sports and fitness business when a young person or student is hired by the franchise owner-operator between Mondays through Friday evenings (Curves, 2011). However, there are other additional costs like insurance, utilities, and small miscellaneous expenses cost when setting up the fitness center. To many the option of a franchise in Curves believes is easier than trial or error, as it is easier to sell while it has a higher value as compared to an independent business. In addition, it gives one an option of being a boss besides exchange of ideas amongst a group of people while motivating each other.