Accounting CVP Analysis for Snap Essay

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It is known that the membership fee is $26. Using this, the variable cost per member can be calculated, as shown in table 2.

Revenue per member (a)

$26

Fixed costs per member (b)

$20

Variable cost (a-b)

$6

If the membership fee is $26 per member, the membership fee, less the fixed cost (at the break even point) will give the variable cost per member.

The information in tables 1 and 2 can be used to assess the number of membership the Snap Fitness will need to sell each month if they wish to make a profit of $10,000 per month. As seen above, it is the contribution per unit that will initially pay for the fixed costs and then the profit. To calculate the sales needed for a predetermined profit level, the required profit should be added to the fixed costs.

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That total may then be divided by the contribution per members to give the number of memberships that need to be sold to achieve that level of contribution (Kinney and Raiborn, 2012).

Table 2; Memberships Needed for $10,000 Profit

Fixed costs (as in table 1) (a)

$6,000

Target profit (b)

$10,000

Total contributions to cover fixed cost and profit (a+b) (c)

$16,000

Contribution per member (d)

$20

Memberships needed (c/d)

Table 2 shows that for Snap Fitness to make a $10,000 a month profit they need to sell 800 memberships. Knowing the number of memberships need, and the total cost of membership can now be used to assess the total revenue that will need to be generated for a $10,000 profit. This is shown in table 3.

Table 3; Revenue for a $10,000 Profit

Revenue per membership

$26

No......

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