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CVP and Break-Even AnalysisStudentsUniversity of PhoenixACC/561July 6, 2015Instructor:

11CVP and Break-Even AnalysisSnapfitness.com, 2015The fitness industry is a growing industry

Background of the Snap Fitness franchise

Low investment needed to open a franchise

Low monthly cost without contract for customers

Today, people are focused on living and eating for a healthier lifestyle. One of the fastest growing businesses within the United States is the health industry. Business owners are investing and purchasing fitness franchises that offer low cost membership as well as convenient hours. Snap Fitness is one of those franchises that have over 1,400 locations worldwide. One of the reasons that Snap Fitness would be beneficial to invest in and also to purchase is because it is a growing industry

2CVP AnalysisFranchisechatter.com 2011, AmbrosioCVP Analysis Finds Break-even PointBreak-even: No Income or Loss CVP Makes Assumptions for FormulasAssumes All Costs Fixed/VariableAssumes Sales Prices are Constant

Numerous businesses use Cost-Volume-Profit (CVP) to find the break-even point. The break-even point is when the costs of operating are 100% met by the amount of sales of a given product. At the break-even point, the company has no income or loss based on the costs and sales of the product. To understand the working relationships between cost, volume, and profit in an organization, managers use the CVP. The CVP deals with how the changes in fixed costs, variable costs, and the selling price (per unit) for Snap Fitness affect the operating profit. CVP makes the supposition that all costs are either fixed or variable. The CVP presumes the fixed costs, the variable costs, and the sales price per unit are constant too. Additionally the CVP theorizes the selling of all products produced. 3CVP Analysis page twoCVP Analysis For Snap Fitness

The basic formula used in CVP is: price per unit multiplied by the entire number of units produced and sold is equal to variable costs per unit multiplied by the quantity of units sold and produced plus the fixed cost plus profit. The contribution margin is the amount that sales exceed variable costs. The unit contribution margin ratio is the amount that sales excess sales per unit minus the variable cost per unit.With Snap Fitness, the fixed expenses are $6,000. The company must sell 300 memberships at $26 each to meet the break-even point. The calculation is 300 times $26. The total of the companys costs is then $7,800 for a month. The costs, minus the fixed costs give the result of the variable costs per month. With such information, a table can represent the calculations mentioned that includes the information from Snap Fitness. The table shows the CVP analysis for Snap Fitness, including the Contribution margin, variable cost, and other relevant data necessary.

4Monthly SalesDetermines Sales Target Settings$10,000 Net Income Target$17,800 Needed in Sales Monthly685 Members = $17,810Monitor to Establish New Members Needed

As the franchise for Snap fitness wants a net income of $10,000, the membership will need to maintain 685 members. The break-even point determined by 300 members is $7800. To have $10,000 in net income the total required sales in dollars would need to be $17,810. To reach $17,810 in sales, Snap Fitness needs to maintain 685 members per month at the $26 per month unit price. Monthly sales (in members and dollars) determine what sales targets should be set, how to achieve a target net income, costs per unit, and other pertinent financial data. Monthly sales of 685 members can be a variable mix of new and current members to make the sales goals. Any amount over 300 is profit, but not the target goal. Snap Fitness must maintain 685 members and must monitor clients that start and drop monthly memberships to establish a base of customers. The target of 685 minus the base will give the estimate of the exact target number needed in sales of new memberships each month. 5Variable Costsblogs.swa-jkt.com, 2013Costs that Vary in TotalLabor is a Variable CostUsed to Measure Future PerformanceSet the Minimum Price PointsFixed Costs+Variable Costs= Total Costs

Before deciding to invest in a fitness center the variable costs incurred will need to be reviewed. The variable costs are costs that vary in total with the level of activity. The cost per unit remains constant, but the amount of units may vary. An example would be labor. If Snap Fitness has a variable cost per employee (the unit) of $15 an hour and the employee works 40 hours, that cost is $600. If an employee works 50 hours in a week, the labor cost changes to $750. The variable cost idea is used to model the future financial performance of a business, as well as to set minimum price points. Variable costs differ from fixed costs such as rent, advertising, insurance and office supplies, which tend to remain the same regardless of production output. Fixed costs and variable costs comprise total cost.6Variable CostsFitnesspatterns.com Stobbs, 2014Billable Labor Main Variable CostVariable Commissions of Sales StaffCredit Card Sales are VariablePiece Rate LaborDirect Materials Expense is Variable

Billable labor is one of five main types of variable costs experienced by Snap Fitness. Another variable cost associated with the employees would be commissions. The sales staff earns commissions when transactions are completed and different amount of sales result in variable commission expenses for Snap Fitness. When a customer pays his or her membership fees, if he or she pays with a credit card, there is a fee paid to the card company. This fee is not incurred unless a card is used therefore; the fee is a variable cost as well. Piece rate labor, where employees are paid based on the number of units produced, is another common variable cost. Direct materials are a variable cost as the expense of the materials are charged when the products are sold. Items such as water and energy drinks are a variable direct material as the amount ordered will change with each order. In addition to the five main types of variable costs Snap Fitness experiences, a sale of merchandise to customers is a variable cost. The merchandise can include products such as clothing, health foods, sports drinks, and vitamins supplements. Different types of membership levels with different pricing structures other than the $26 membership change monthly, adding to the variable costs. Finally, the fluctuation of the utilities due to the weather or the season is a variable cost for Snap Fitness. Snap Fitness is similar to other fitness franchises with regard to variable costs.

7Benefits of Choosing Anytime FitnessAccess to 2 Million MembersLow Startup Costs: $84k-$417kOngoing Support: Franchise Consultants & ExpertsSeamless Technology for Security/PaymentsOngoing Training

Anytime Fitness is a proven gym concept with over 2 million members. As a franchisee the initial investment is lower than other well known organizations like McDonalds and Radio Shack. Those startups can start at 150k whereas Anytime Fitness can start at 84k. Anytime fitness provides initial support and ongoing support in the shape of real estate experts for lease options, franchisee consultants, marketing packages,insurance specialists, and continual training. Anytime Fitness can be run with out staff because seamless technology that allows member 24/7 access and payments and purchasing options all while keeping each member safe within the facility. This also means that a healthy work life balane is provided to franchisees and any staff they decide to hire. Training is an ongoing commitment at Anytime Fitness. They offer online manuals for every phase of the business as well as regional training, conference calls, and store visits in order to make their franchisees better (Anytime Fitness,2015).8ConclusionSnapfitness.com, 2015Franchise Beneficial and ChallengingVariables Make Investing Decisions ComplicatedHealth Industry Investment Appears ProfitableFuture Profits and Market Growth Potential

According to the CVP analysis owning a franchise would be both beneficial but challenging. If costs and profits were always a set figure than franchise ownership would be an easy choice for any entrepreneur or group looking to turn a profit. But, the variables in owning a franchise make the decision to invest in a franchise mush more complicated. Variables such as location, competition, customer benefits and amenities are just a few challenges that can face not only a franchise but businesses in general. Based on the information provided, investment into the health industry appears profitable, timely and supportive. A preexisting business plan, receiving help as needed when running the franchise and benefiting from group marketing are positives for a franchise investment. Though, some franchise requirements may require the investor to buy all of their goods and services from the franchisor, also a percentage of the investors profits may be garnished as a royalty fee. Even training fees for you and your employees, and contributions to a fund for group advertising may be required. Nonetheless, after all of these considerations still the bottom line remains, are future profits and market growth progressive in this investment. In this particular case, yes investment into the health industry does prove to be a both profitable and growing venture. 9ReferencesAmbrosio. (2011, May 12). Franchise Chatter Exclusive: Q&A with Peter Taunton, Founder and CEO of Snap Fitness. Retrieved from Franchise Chatter.com website: http://www.franchisechatter.com/2011/05/12/franchise-chatter-exclusive-qa-with-peter-taunton-founder-and-ceo-of-snap-fitness/ Denham Springs. (2015). Retrieved from http://www.snapfitness.com/gyms/denhamsprings-la-70726/2105Investopedia (2015) Retrieved from http://www.investopedia.com/terms/c/cost-volume-profit-analysis.asp Kimmel, P. D., Weygandt, J. J., Kieso, D. E. (2011). Accounting: Tools for business decision making (4th ed.). Hoboken, NJ: John Wiley & Sons Snap Fitness (2015) Retrieved from http://www.snapfitness.com/fitness-franchise-opportunities#why-own Stobbs, J. (2014). Gym Ripoff. Retrieved from http://fitnesspatterns.com/tag/gym-ripoff/ Trickey, A. (2013). TOF-2 Firms Costs: Fixed,variable and Short run costs.. Retrieved from http://blogs.swa-jkt.com/swa/anthonytrickey/2013/09/16/firms-costs-fixedvariable-and-short-run-costs/ 10Certificate of Originality I certify that the attached paper is my original work. I am familiar with, and acknowledge my responsibilities which are part of, the University of Phoenix Student Code Of Academic Integrity. I affirm that any section of the paper which has been submitted previously is attributed and cited as such, and that this paper has not been submitted by anyone else. I have identified the sources of all information whether quoted verbatim or paraphrased, all images, and all quotations with citations and reference listings. Along with citations and reference listings, I have used quotation marks to identify quotations of fewer than 40 words and have used block indentation for quotations of 40 or more words. Nothing in this assignment violates copyright, trademark, or other intellectual property laws. I further agree that my name typed on the line below is intended to have, and shall have the same validity as my handwritten signature.Students signature (name typed here is equivalent to a signature):Students

July/06/2015Certificate of OriginalityAcademic Operations & Training

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