To open a new Star Fitness location, each franchise owner has an initial capital outlay of Rs.1,000, 000 for various types of equipment and a one-time licensing fee of Rs.25, 000. The franchisee also pays Star (the parent company) a royalty fee of Rs.50,000 per month plus Rs.250/- for each membership. Star also collects one-time fees of Rs. 500 for each new member’s “billing setup” and Rs. 200 for each security card issued. If a new club attracts 300 members, it can break even in as little as three months. Required: Marks 10
1.Can you estimate the underlying calculations related to this break-even point?
2.How these underlying calculations may benefit the company to pay more attention to the operations of the business and strategies to introduce more innovative and high earning product/services and that could also surpass the present 500,000 memberships to 700,000 memberships in the coming year. Your analysis must be supported by valid arguments and necessary computations.