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Health Nuts is a fitness centre, offering ‘pay as you go’ gym facilities. It has a fully fitted gym with the capacity to accommodate 200 users at one time. It also has 100 car parking spaces and an onsite café, both of which are only for customers using the gym. The fitness centre has shower facilities for customers and Health Nuts provides all customers with a clean towel to use on entry. It is open 360 days a year, from 7.00 am until 9.00 pm.
Customers pay $8.40 for access to the gym for one hour plus unlimited time in the café. If customers want to use the car park, they have to pay an additional $1 per visit and 80% of visiting customers use the car park. Health Nuts has been monitoring the number of customers attending throughout each day for the month of June, which was considered to be an average month, and for which Health Nuts was open for 30 days. It has determined that the average number of customers per day is 330 with 40 of these customers attending during the time of 9.00 am to 5.00 pm.
The total costs of the fitness centre for June, excluding the café, have also been recorded and analysed as follows:
Fixed costs per month
$48,000
Variable cost per customer
$1.20
On average, half of the customers also used the café in June, with an average spend per customer of $2.20. Of this spend, 60% related to drinks, which have a profit margin of 60%, and the remainder related to food items, which have a profit margin of 40%. The specific fixed costs associated with running the café are $3,600 for the month
(a) Calculate both the number of customers Health Nuts needs to break even and the margin of safety as a percentage for the month of June for:
(i) The gym
(ii) The café
fixed c 3600
the average customer spends per unit in $ 2.2
drinks margin 0.792
food margin 0.352
no of customers at cafe 4950
fixed c ost per person 0.73contribution per person 1.87
breakeven revenue 3600/1.87=1925dear tutor, I have an issue with the “the cafe” part as the profit margin of sales is given so so I added the sum of profit margin with the fixed cost per unit to find the contribution but in the question, they just used the profit margin sum as the contributions in the answer and I don’t know why.
please enlighten me on this.Please do not type out full questions – they are copyright of the ACCA and I have the questions anyway, so you only need to state the name and the exam date 🙂
The contribution is always the selling price less the variable costs. We never take fixed costs into account when calculating the contribution.
(You can find a lecture working through the whole of this question is you follow the link to Revision Kit Live from the main Paper PM page on this website 🙂 )
sir, but the variable cost for the cafe is also not given; we are given sales per customer and profit margin and the profit margin is taken as contribution in this question. how is this possible?
It is quite normal both in real life and, more importantly in the exam, to refer to the profit on different products (here food and drink) as being the difference between the selling price and the cost of the product.
Had the examiner required absorption costing then the question would have said so, and told you how the fixed costs were to be absorbed.
In addition, because the question was asking for the breakeven, there was no choice but to treat the profit margin as being the contribution margin.
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