As the new manager of a local fitness club, Gifted & Lifted, you have been study
ID: 2333145 • Letter: A
Question
As the new manager of a local fitness club, Gifted & Lifted, you have been studying
the club’s financial data. You would like to determine how the club’s costs behave in
order to make accurate predictions for next year. Here is the information from the
last six months:
Month
Club enrollment
(# of members)
Total operating costs
Operating Costs per member
July
450
$8,900
$19.78
August
480
$9,800
$20.42
September
500
$10,100
$20.20
October
550
$10,150
$18.45
November
560
$10,500
$18.75
December
525
$10,200
$19.43
1-By looking at the “Total Operating Costs” and the “Operating Costs per Member,” can you tell whether the club’s operating costs are variable, fixed, or mixed? Explain your answer
2- List 10 costs the club might have and be sure to label them “fixed” or “variable”
3-Use high-low method to determine the club’s monthly operating cost equation.
4-Using the answer from number 3, predict the total monthly operating costs if the club has 800 members. What if instead you have 390 members? 1,000 members?
5-Can you predict total monthly operating costs if the club has 3,000 members? Explain your answer
Month
Club enrollment
(# of members)
Total operating costs
Operating Costs per member
July
450
$8,900
$19.78
August
480
$9,800
$20.42
September
500
$10,100
$20.20
October
550
$10,150
$18.45
November
560
$10,500
$18.75
December
525
$10,200
$19.43
Explanation / Answer
Solution 1:
As total operating cost is changing with the Number of members, therefore same cannot be considerd as fixed. Further operating cost per member is also not constant, therefore operating cost cannot be considered as variable. Therefore Club's operating cost are mixed.
Solution 2:
List of cost the club might have and be sure to label them "Fixed" or "Variable"
1. Rent - Fixed
2. Electricity - Variable
3. Trainer Fee - Variable
4. Food cost - Varible
5. Administrative Salary - Fixed
6. Equipment depreciation - Fixed
7. Insurance - Fixed
8. Uniform Expenses - Variable
9. Rates and taxes = Fixed
10. Fuel expenses - variable
Solution 3:
Operating cost at 450 members = $8,900
Operating cost at 560 members = $10,500
Variable cost using high low method = (Cost at high level - Cost at low level) / (high level activity - low level activity)
= ($10,500 - $8,900) / (560-450)
= $14.55 per member
Fixed cost = $8,900 - (450*14.545454) = $2.355
Operating cost equation = $2,355 + $14.55 X
Solution 4:
Total monthly operating cost at 800 member = $2,355 + (800*$14.55) = $13,995
Total monthly operating cost at 390 member = $2,355 + (390*$14.55) = $8,030
Total monthly operating cost at 1000 member = $2,355 + (1000*$14.55) = $16,905
Solution 5:
Total monthly operating cost at 3000 member = $2,355 + (3000*$14.55) = $46,005
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