Tom and Lynda own Hercules Gym. An individual membership costs $100 per month. Tom and Lynda estimate

Question:

Tom and Lynda own Hercules Gym. An individual membership costs $100 per month. Tom and Lynda estimate variable costs at $35 per member per month and fixed costs at $40,950 per month. They currently have 950 members.

Required:

a. How many members does Hercules need to break even?

b. Suppose Hercules pays income taxes that amount to 35% of income. How many members does Hercules need to report after tax profits of $11,375?

c. Using the contribution margin ratio, calculate the revenue required to earn an aftertax profit of $11,375.

d. What is Hercules’ margin of safety?

e. What is Hercules’ operating leverage?

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...