## ACC/561: Accounting (Please help me with the calculations)

Week 5 Individual: Cost Analysis and Business Planning

Assignment Content

Read the case study. Write a paper between 700 and 1,000 words addressing the following:

Part 1, Sections 1-2: Provide calculations and a solution for total variable costs, break even in sales volume (number of members), break even in sales (in dollars), and margin of safety.

Part 1, Section 3: Respond to the questions included with the case study

Part 1, Section 4: Assume you decide to invest in the franchise. Provide a description and estimates in dollars for monthly sales, variable and fixed expenses. Explain how you determined each number and provide a written list of assumptions.

Case Study: 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 (\$22, without an annual contract) customers can access a Snap Fitness center 24 hours a day. Start-up costs include pre-opening costs: franchise fee, grand opening marketing, leasehold improvements, utility/rent deposits, and training.

Part 1, Section 1: Suppose that representatives from Snap Fitness estimate that each location incurs \$3,975 per month in general fixed operating expenses and \$410 to lease equipment. Mixed costs are equal to \$275 per/month (fixed) plus \$1.10 per membership sale (variable). Total variable costs were not provided. Representatives from corporate stated that a Snap Fitness franchise might require only 270 to 300 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 mixed costs.) Show your work and all calculations.

Part 1, Section 2: Using the information from section 1. What would monthly sales in members and dollars have to be to achieve a target net income of \$13,500 for the month? What is the margin of safety in dollars? Show your work and all calculations.

Part 1, Section 3: Discuss how cost structure, relevant range, margin of safety, cost behaviors, and CVP apply to an investment in the franchise. 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?

Part 1, Section 4: Assume you decide to invest in the franchise. Provide a description and estimates in dollars for sales, variable and fixed expenses. Explain how you determined each number and provide a written list of assumptions.

Pending
28 Aug 2019
Due Date: 28 Aug 2019

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