## Cost Analysis and Business Planning Assignment

Cost Analysis and Business Planning Assignment

Read the case study. Write a paper between 900 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.

Format the paper consistent with APA guidelines. Deliverables: Paper (MS Word) and Excel File . Review your Originality Report generated from SafeAssign. A new originality report is created with each attempt.

The case study, instructions, and resources are included below.

Case Study: In addition to regular gyms, nontraditional workout concepts and centers such as Kosama are increasing in popularity. Kosama is a franchise opportunity that offers members the opportunity to improve their health and fitness level. To learn more about the company visit kosama.com.  Cost Analysis and Business Planning Assignment

Part 1, Section 1: Assume the following revenue and cost break-down.

Revenue:

-Monthly membership fee = \$30.

Costs:

-General fixed operating expenses = \$4,100 per month.

-Equipment Lease = \$395 per month.

-Mixed costs are equal to \$275 per/month (fixed) plus \$1.10 per membership sale (variable).

-Total variable costs are not known.

-Estimated number of members required to break even is 330 members per month.

Using the information provided 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 \$13,750 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.

The following are additional explanations and resources.

Part 1, Section 1: Use the following formula in order to determine total variable costs.

Sales – Variable Costs – Fixed Costs = Net Income.

Add the problem data to the formula and solve for the missing piece of the equation (i.e. variable costs).

1. Membership sales is equal to sales volume times the price per member.

2. Total variable costs is not known. Enter X in the above formula.

3. Total fixed costs are provided with the problem. Enter fixed costs in the above formula.

4. Net income at the break even is equal to zero. Enter 0 in the above formula for net income.

5. Solve the equation. X = total variable costs.

The above formula determines total variable costs at the break-even.

Part 1, Section 2: Use the solution from part 1, section 1 (i.e. variable costs) in order to calculate the contribution margin (i.e. sales – variable costs) on a per unit (member) basis. In addition to fixed costs, add targeted net income equal to \$13,750.

Contribution Margin:

Sales: membership sales times the price per member

Minus Variable Costs: See solution in part 1, section 1.

Equals: Contribution Margin in dollars

Contribution Margin in dollars / number of memberships = contribution margin per member.

The next step is to determine what monthly sales in members and dollars has to be to achieve a target net income equal to \$13,750 for the month? Utilize the CVP formula (fixed costs / contribution margin per member) to finalize the problem. Compute the margin of safety.

Resource – Enhance learning & understanding: For additional guidance regarding cost volume profit analysis and related cost concepts please review the following.

Cost Volume Profit

Franchise Agreement: As you review and analyze the franchise opportunity it is important to develop a thorough understanding of the franchise agreement prior to investing. The following is an article that explains the basic fundamentals of an agreement.

Franchise Agreement