Q1.

When Shapes Fitness Club was filing for bankruptcy, Star Fitness Club was expanding to more than 900 clubs in Pakistan with 400,000 members. The secret to Star Fitness' success is its "no frills" approach to exercise. Each club typically has five treadmills, two stationary bikes, five elliptical machines, and weight equipment while bypassing amenities such as on-site child care, juice bars, and showers. Each club is usually staffed only 25-40 hours per week and it charges a membership fee of Rs.35 per month.

To open a new Star Fitness location, each franchise owner has an initial capital outlay of Rs.120, 000 for various types of equipment and a one-time licensing fee of Rs.15, 000. The franchisee also pays Star (the parent company) a royalty fee of Rs.400 per month plus Rs.0.50 for each membership. Star also collects one-time fees of Rs. 5 for each new member's "billing

setup" and Rs. 5 for each security card issued. If a new club attracts 275 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 400,000 memberships to 600,000 memberships in the coming year. Your analysis must be supported by valid arguments and necessary computations.