Rena and Sue officially took over a yoga business on 1 December 2012. Instead of paying Peri a lump sum to "buy over" its yoga business, RS ("Rena and Sue") took on the liability of honouring all existing yoga client packages that remained unfulfilled as of that date. There were more than 70 clients who had purchased one-year unlimited class packages at a promotional price offered by Peri and these packages had varying outstanding tenures. In addition, there were over 100 clients with fully paid, but unfulfilled classes, with varying time validity (time validity lasted no more than a year). RS rented a 1,900 sq ft space within the Peri building. At that time, the minimum monthly rent for a commercial space in Peri's vicinity in Singapore was $1.62 per sq ft. The median rent was $5.89 per sq ft and the maximum rent was $19.06 per sq ft.24 Initial costs outlay for RS included a refundable security deposit amounting to three months' rent, paid to Peri. The lease agreement would end in August 2014, with an option to renew for another three to five years. RS also paid a monthly fee of $3,500 to Peri for the use of shared facilities and administrative services. Such facilities included RS's yoga clients' use of shower and towel facilities in Peri. Furthermore, Peri's front desk receptionists handled some parts of RS's miscellaneous administrative matters (for example, signing clients in for yoga classes). RS also paid Peri for use of the 'Salt Cave' for conducting salt stretch classes at a graduated rate based on headcount. There was also discussion on revenue sharing between Peri and RS when RS's business hit a minimum profit threshold.

Rena and Sue spent an additional $10,000 to build a partition to divide the studio into two smaller spaces of approximately 1,100 sq ft and 800 sq ft. They named the larger room, Space studio, and the smaller one, Light studio.

Rena and Sue continued to be the primary yoga teachers at RS subsequent to the takeover. They continued to teach 'Anusara-Inspired' yoga classes. While not all the teachers at RS were 'Anusara- Inspired', all yoga classes at RS were focused on proper physical alignment in yoga poses. Rena and Sue maintained a team of teachers that shared this teaching philosophy. In 2013, there were three main categories of yoga classes offered at RS: (i) group classes, (ii) classes conducted in the 'Salt- Cave' (these were semi-private classes); and (iii) private classes. Group yoga classes were the predominantly offered type, and there were about 40 group yoga classes a week held at RS. RS clients could choose to pay a 'drop-in' rate when they attended a class, buy a fixed number of classes with varying time validity, or buy an unlimited number of classes for a fixed period of time.

In the month of May 2013, RS had 250 clients attending the group yoga classes. The average revenue that RS earned each time a client visited a group class steadily increased from December 2012 to May 2013. In the first two months, the average revenue per client visit was $10. In the subsequent two months, this number had grown to $15. By April and May 2013, the average revenue per client visit was $21. In the same six months, the average revenue per client visit to a private and salt stretch class was $130 and $70 respectively. 25 (See Exhibit 1 - Number of Group, Private & Salt Stretch Classes Conducted Monthly in 2013, and Exhibit 2 - Monthly Number of Client Visits for Group, Private & Salt Stretch Classes in 2013).

In addition to regularly scheduled classes, internal workshops were also held from time to time. Some examples of such internal workshops were foundation yoga for beginners, yoga for back pain and yoga for athletes. Pricing for these workshops varied. From time to time, group yoga classes were also specially organised for employees of corporate clients. External instructors could also utilise the yoga studios for a fee of $90 per hour for the Light studio and $160 per hour for the Space studio. Rena and Sue continued to organise workshops through their LLP outfit and held these workshops at the RS studios.

RS subscribed to a web-based business management software, MINDBODY (MB), developed for the health and wellness industry. In 2013, over 4,000 yoga studios worldwide utilised the MB software. The software cost RS US$70 monthly, which included up to five administrator user accounts (regardless of the number of client accounts set up). MB (i) allowed RS to keep records of their operations; (ii) provided RS a platform for managing and analysing client information that could be used for targeted marketing; and (iii) provided RS tools for efficient staff and resource allocation. For instance, each time a client attended a class, his or her client account would be updated. As such, through MB, RS could send clients newsletters and alerts regarding expiry of their class packages via email. Conversely, clients who wanted to keep track of their class packages could log into their MB client accounts. In addition, MB gave RS easy access to class attendance information, which facilitated scheduling and resource allocation decision-making.

When Rena and Sue took over the yoga business in December 2012, Peri had six part-time yoga teachers (including Rena and Sue) who were paid on a per class basis. In the subsequent six months, RS increased the number of yoga teachers to nine. Rena and Sue took the quality of their teaching team seriously. Teachers were selected based on factors such as their training background, and whether their teaching philosophy placed an emphasis on optimal alignment of the body. Teachers in RS were paid a flat rate per class, regardless of whether it was a group class, salt stretch class or private yoga class. In the beginning of 2013, informal sources revealed that studios in Singapore paid the yoga teachers they employed a range of $35 to $150 for a class that lasted 60 to 90 minutes. At that time, the average rate for yoga teachers was known to be around $60 per class.

In the case of internal workshops conducted by RS's in-house yoga teachers, there were varied revenue sharing arrangements.

In May 2013, Rena and Sue assessed that RS was running at only 30 percent to 40 percent of capacity. This meant that they had to: (i) retain Peri's clients who had unfulfilled class packages at the point of their takeover, beyond these clients' existing commitments to the studio; and (ii) reach out to broader client segments and attract new clients.

When RS took over, Peri's yoga clients were mostly females in their 30s and 40s. Due to Peri's unique location, which was off the main road, many of its clientele drove cars. Furthermore, the free parking spaces in the complex offered an additional incentive for these clients. While the location of Peri (and correspondingly RS) with its lush surroundings was a strong selling point, it also unfortunately rendered Peri less accessible to those who did not own cars. In an attempt to increase client traffic flow and accessibility, Peri started a shuttle bus service in April 2013 to shuttle clients to and from a nearby Mass Rapid Transit (Train) station. RS paid an additional fee of $700 monthly to Peri for their share of this shuttle bus service.

Required:

Apply cost-volume-profit analysis to examine RS's break-even point for May 2013. Base your analysis on the assumption that only group classes are offered. Clearly state any other relevant and reasonable assumption(s) you made in your analysis. Explain the implications of your assumption(s) and analysis for the owners of RS. (30 marks)

EXHIBIT 1 NUMBER OF GROUP, PRIVATE & SALT STRETCH CLASSES CONDUCTED MONTHLY IN 2013* No. of Classes Group Private Salt Dec 2012 112 7 0 Jan 2013 137 21 6 Feb 2013 113 15 0 Mar 2013 143 33 1 Apr 2013 135 10 1 May 2013 155 18 6 *Note: The figures have been adjusted by the Authors for teaching purposes. EXHIBIT 2 MONTHLY NUMBER OF CLIENT VISITS FOR GROUP, PRIVATE & SALT STRETCH CLASSES IN 2013* Client Visits Group Private Salt Dec 2012 296 7 0 Jan 2013 1,009 21 18 Feb 2013 699 15 0 Mar 2013 998 33 2 Apr 2013 907 10 2 May 2013 1,048 18 12