CVP ANALYSIS 1

Snap Fitness is a company that offers franchising opportunities by saving money and time by

providing a convenient place to equip and train the consumer, offering the opportunity to add

or reject any service. The future of Snap Fitness development and acquisition within this

document is determined by evaluating the return on investment. The fitness center is analyzed

and the cost-variable-profit ratio and variable costs are assessed.

Cost volume profit (CVP) analysis is a method of cost accounting that looks at the result of

different types of costs and quantities on operating profit. Cost-volume-profit analysis, also

commonly known as a break-even analysis, determines the break-even point for different

sales volumes and cost structures that are useful for managers making short-term economic

decisions. This analysis makes several assumptions, including that the sales price, fixed costs,

and variable cost per unit are constant. Running this analysis involves using several equations

for the price, cost, and other variables, then plotting them out on an economic graph.

Snap fitness activities cost $ 5,000 per month for each location, with fixed operating costs, $

1,000 per leased equipment, $ 500 per month and $ 1 per member.

Here the fixed cost is = 5000+1000+500 = $6500

Where sales = variable cost + fixed cost

Breakeven is ascertained at 320 memberships

So 320*27 = variable cost + 6500

Where Variable cost = 8640-6500 = 2140

Substituting the value in the equation

Sales = 2140+6500 =8640

Variable cost per member = 2140/320 = $6.69 (which includes $1)

CVP ANALYSIS 2

The variable costs covered by Snap Fitness can be controlled by controlling the different

costs that Snap does each month. If Snap is running, the costs include building leasing,

electricity, water, and staff. You can reduce these costs by decreasing the rent of the building

by finding more cost-effective ways to supply electricity to the equipment or by decreasing

the number of employees you have with employees. You can reduce variable costs for the

company by finding a seller who is cheaper than leasing your equipment. CVP analysis

evaluates how constant and variable a company's cost is and how many changes in sales

volume and price affect the company's profitability. It is a very powerful financial and

accounting management tool. It is also one of the most widely used management accounting

tools to help managers make better decisions.

CVP ANALYSIS 3

REFERENCES
Guidry, F., Horrigan, J. O., & Craycraft, C. (1998). CVP analysis: a new look. Journal of

Managerial Issues, 74-85.

Magee, R. P. (1975). Cost-volume-profit analysis, uncertainty and capital market equilibrium.

Journal of Accounting Research, 257-266.