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Should the company make the change

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Reference no: EM132965478

Fitness First commenced trading eight months ago. The company operates premises located in Dublin including a swimming pool, a gym and a fitness studio.

The company is contemplating using the fitness studio to run classes and the costs are set out below:

                                                    Circuits Class              Dance Class
Price                                                €7                                €8
Insurance                                         €12,000                     €12,000
Ancillary fees                                  €3.20 per class          €3.20 per class
Electricity, administration, etc.                 €2,536                        €2,536
Cost of Teacher                             €50 per class                €3,300 per year

Expected number of participants per class 25

REQUIREMENT:

Problem (a) For each type of class:

(i) Calculate the breakeven point in sales revenue.

(ii) If Fitness First requires a profit of €10,000 how many classes must be held?

Problem (b) The company is considering paying the circuits instructor a fixed fee of €2,600 for the year instead of a fee per class. Calculate the effect that this change will have on the breakeven point in sales revenue. Should the company make this change?

Problem (c) Outline TWO assumptions on which the Cost-Volume-Profit model is based.

Reference no: EM132965478

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