Maria is opening a fitness center in her local area. She’ll offer regular monthly memberships that give access to gym equipment and standard fitness classes. She’ll also sell premium fitness classes, which require members to pay an extra fee each time they attend. In addition, the fitness center will sell dietary supplements. Maria must be sure to account for the cost of the supplements too or she’ll lose money. As Maria plans for the coming months, she notes three things:
• Besides the monthly lease, the fitness center needs insurance coverage to protect against damage from a storm or fire and to cover any claims from members getting hurt. Maria will lease weights and cardio equipment and will have a monthly payment for that. She’ll also pay for utilities monthly and will pay salaries for the staff who run the facility. All of these expenses will stay roughly the same no matter how many members come in each day.
• The instructor for the premium bootcamp class charges $50 per class. If Maria doesn’t have any members who want that class, she won’t need to pay that $50 instructor charge. If she has enough members to run that class 10 times each week, she’ll need to pay the instructor $500 ($50 x 10) per week to run the class.
• If there is no demand to sell protein powder, then Maria won’t have any expenses associated with it. If 100 members want to buy protein powder each month, Maria will need to purchase 100 bottles from her wholesaler. If 200 members want to buy it, then she’ll need to purchase 200 bottles. There is a direct link between her sales levels for protein powder and the expenses related to those sales.
Besides the monthly lease, the fitness center needs insurance coverage to protect against damage from a storm or fire and to cover any claims from members getting hurt. Maria will lease weights and cardio equipment and will have a monthly payment for that. She’ll also pay for utilities monthly and will pay salaries for the staff, who run the facility. What type of costs are these expenses?
Inelastic costs
Variable costs
Fixed costs
Breakeven costs