LO4 (b) Any One (15 marks) 1. S.E.G., a Dubai based Gym/ Fitness company, has fi
ID: 1118282 • Letter: L
Question
LO4 (b) Any One (15 marks) 1. S.E.G., a Dubai based Gym/ Fitness company, has fixed costs of 40,000 Dhs per month and variable costs of 20 Dhs per fitness class member. The company currently charges 100 Dhs for each fitness class member and has in total members taking classes per month. 800 The Gym wants to raise the class charge to 120 Dhs to cover enhanced features cost by 10 percent such as new music and energy drinks which will increase the variable a) What is the old breakeven point in number of members? b) What is the new breakeven point in number of members? c) Assuming the classes sold stays the same, will the company make more profit or less profit with the new music and energy drinksExplanation / Answer
Break-even point (BEP) = Fixed cost / (Selling price - Unit variable cost)
(a) Old BEP = Dhs 40,000 / Dhs (100 - 20) = 40,000 / 80 = 500
(b) New variable cost = Dhs 20 x 1.1 = Dhs 22
New BEP = Dhs 40,000 / Dhs (120 - 22) = 40,000 / 98 = 408
(c) Profit = Quantity x (Price - Unit variable cost) - Fixed cost
Original profit (Dhs) = 800 x (100 - 20) - 40,000 = 800 x 80 - 40,000 = 64,000 - 40,000 = 24,000
New profit (Dhs) = 800 x (120 - 22) - 40,000 = 800 x 98 - 40,000 = 78,400 - 40,000 = 38,400
Profit has increased by Dhs (38,400 - 24,000) = Dhs 14,400.
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