Fixed Costs, Variable Costs, and Bep
Fixed Costs, Variable costs, and Break Even Point
Elizabeth Gaud
HSM /260
August 21, 2011
Stephanie Koontz
Fixed Costs, Variable costs, and Break Even Point
Exercise 10.1 Recompute fixed costs, variable costs, and the BEP. What are the variable costs? What are the fixed costs? How many meals will the WHDM program need to provide during the fiscal year to reach the BEP? How much profit will the program earn if it completes its 45,000-meal contract with the City of Westchester?
Answer:
The variable cost per unit of service is $3.93 during the fiscal year the WHDM should provide 1,011 meals to reach their BEP of $3,665.76. The total profit the program will earn if it completes its contract of 45,000 meals is $1,859.77.
How I calculated my answer: 1. The difference in service volume = subtracting the low from the high time period 4,900 – 3,500 = 1,400 2. The differences in costs = subtracting the low from the high time period costs $26,000 - $20,500 = $5,500 3. The variable cost per unit = dividing the difference in cost by the difference in service $5,500 / 1,400 = $3.93 4. Total variable cost = multiplying the variable cost by the low time period 3,500 x $3.93 = $13,755. 5. Total fixed cost = subtracting the total variable cost from the low time period $20,500 - $13,755 = $6,745 6. Computing the Break Even Point = Px = A + Bx = $3,665.76 P = $5.77 ($5.77x – 6745 + $3.93x) X = $1.84 ($5.77 - $3.93 – 6745 + ($3.93 - $3.93) A = 6,745 ($1.84x – 6745) B = $3.93 ($1.84x / $1.84x – 6754 / $1.84x) 7. BEP for year = multiply BEP by 12 $3,665.76 x 12 = $43,989.12 8. Number of meals = subtracting BEP for year from total contracted meals
Elizabeth Gaud
HSM /260
August 21, 2011
Stephanie Koontz
Fixed Costs, Variable costs, and Break Even Point
Exercise 10.1 Recompute fixed costs, variable costs, and the BEP. What are the variable costs? What are the fixed costs? How many meals will the WHDM program need to provide during the fiscal year to reach the BEP? How much profit will the program earn if it completes its 45,000-meal contract with the City of Westchester?
Answer:
The variable cost per unit of service is $3.93 during the fiscal year the WHDM should provide 1,011 meals to reach their BEP of $3,665.76. The total profit the program will earn if it completes its contract of 45,000 meals is $1,859.77.
How I calculated my answer: 1. The difference in service volume = subtracting the low from the high time period 4,900 – 3,500 = 1,400 2. The differences in costs = subtracting the low from the high time period costs $26,000 - $20,500 = $5,500 3. The variable cost per unit = dividing the difference in cost by the difference in service $5,500 / 1,400 = $3.93 4. Total variable cost = multiplying the variable cost by the low time period 3,500 x $3.93 = $13,755. 5. Total fixed cost = subtracting the total variable cost from the low time period $20,500 - $13,755 = $6,745 6. Computing the Break Even Point = Px = A + Bx = $3,665.76 P = $5.77 ($5.77x – 6745 + $3.93x) X = $1.84 ($5.77 - $3.93 – 6745 + ($3.93 - $3.93) A = 6,745 ($1.84x – 6745) B = $3.93 ($1.84x / $1.84x – 6754 / $1.84x) 7. BEP for year = multiply BEP by 12 $3,665.76 x 12 = $43,989.12 8. Number of meals = subtracting BEP for year from total contracted meals
References: Martin, L. (2001). Financial management for human service administrators. Needham Heights, MA: Allyn & Bacon.