2A group of developers is opening a health club near a new h

2.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. However, they want the health club to at least break even the first year or two. The annual fixed cost for the building, equipment, utilities, staff, and so on is $875,000, and annual variable costs are $200 per member for things like water, towels, laundry, soap, shampoo, and other member services. The membership fee is $225 per month.   a.How many members will the club need to break even?

Solution

Annual fixed cost = $875000

Annual Variable cost = $200 per member

The membership fees is $225 per month. So annual membership fees = $225 x 12 months = $2700.Therefore annual revenue = $2700 per member

Break even point = Fixed cost / (Revenue - Variable cost)

= $875000 / ($2700-$200)

= $875000 / 2500

= 350 members

So the club needs 350 members to break even