09. (15 marks) costs of 40,000 Dhs per month and variable S.E.G., a Dubai based

Question

09. (15 marks) costs of 40,000 Dhs per month and variable S.E.G., a Dubai based Gym/ Fitness 100 Dhs for each fitness class company, has fixed costs of 20 Dhs per fitness class member. The company currently charges member and has in total 800 members taking classes per month kants to raise the class charge to 120 Dhs to cover enhanced features such as new music and (3 Marks) energy drinks which will increase the variable cost by 10percent a) What is the old breakexen point in number of members? b) What is the new breakeven point in number of members? (3 Mar

Explanation / Answer

Answer to Part a)

Break Even Point (in Units/ Numbers) = Fixed Cost / Contribution Margin per member
Contribution Margin per unit = Selling Price per Unit - Variable Cost per unit
Contribution Margin per member = 100 Dhs – 20 Dhs
Contribution Margin per member = 80 Dhs

Break Even Point (in Units/ Numbers) = 40,000 / 80
Break Even Point (in Units/ Numbers) = 500 Members

Therefore, Old Break Even Point is 500 number of members.

Answer to Part b)

Break Even Point (in Units/ Numbers) = Fixed Cost / Contribution Margin per member
Contribution Margin per unit = Selling Price per Unit - Variable Cost per unit
Revised Selling Price per member = 120 Dhs
Revised Variable Cost per member = 20 Dhs + (20 * 10%) = 22 Dhs
Revised Contribution Margin per member = 120 – 22 Dhs
Contribution Margin per member = 98 Dhs

Break Even Point (in Units/ Numbers) = 40,000 / 98
Break Even Point (in Units/ Numbers) = 408.16 Members or 408 members

Therefore, New Break Even Point is 408 number of members.

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