Question

A group of developers is opening a health club near a new housing development. The health club – which will have exercise and workout equipment, basketball courts, swimming pools, an indoor walking/running track, and tennis courts – is one of the amenities the developers are building to attract new homebuyers. The annual fixed cost for the building, equipment, utilities, staff, and so on is $600,000 and annual variable costs are $145 per member for thing like water, towels, laundry, soap, shampoo, and other member services. The developers want the health club to break even at the end of the first year.

Answer 1

Answer:

BEP = 7,500 members will achieve break-even

Missing information:

The membership fee is $225 per month

Explanation:

to break even, the sales revenues should be enough to pay the variable cost and fixed cost. We are asked to find which unit sales price will achieve this:

$\frac{Fixed\:Cost}{Contribution \:Margin} = Break\: Even\: Point_{units}$

$Sales \: Revenue - Variable \: Cost = Contribution \: Margin$

fixed cost 600,000

variable cost: 145

sales revenue: 225

225 - 145 = 80 dollar of contribution margin

$\frac{600,000}{80} = Break\: Even\: Point_{units}$

BEP = 7,500 members