Many of you will own your own business. One rapidly growing opportunity is no-frills workout centers. These types of 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 ($24, without an annual contract) customers can access a Snap Fitness center 24 hours a day.

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 $4,500 per month in general fixed operating expenses and $900 to lease equipment. Mixed costs are equal to $600 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 315 members per month 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 the only fixed costs are the estimated monthly operating expenses, equipment lease and the fixed part of the mixed costs.)

Part 1, Section 3: Provide several examples of variable costs and fixed costs for a fitness center. Discuss how 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 prepare? Why?