Variable Costs

Assignment: Fixed cost

Dora McKinney

Hsm/260 Week 4

Instructor: Greg O’Donnell

Fixed Costs, Variable Costs, and Break-Even Point
Exercise 10.1
Month Meals Served Total Costs
July 3,500 $20,500 Low
August 4,000 22,600
September 4,200 23,350
October 4,600 24,500
November 4,700 25,000
December 4,900 26,000 High
In dealing with step 1-The difference in service volume between high-low periods is (4,900-3,500) 1,400 meals.
In dealing with step 2-The difference in costs between the high-low period is ($26,000-20,500) $5,500.
In dealing with step 3-The variable cost is now computed. The cost difference $5,500 is divided by the service volume of 1,400. The variable cost per unit of service is $3.93.
In dealing with step 4-Total variable costs are now computed. In the low time period the number of meals provided is 3,500. The service volume is then multiplied by the cost per unit of $3.93. The total variable cost for the low month is $13,755. The same is done to figure the total variable costs for the high month 4,900 × $3.93 = $19,257.
In dealing with step 5-Total fixed costs for the low period are now computed. The total program cost for the low month is $20,500. If the variable costs ($13,755) are subtracted from the total costs ($20,500) the remaining amount is the fixed cost at $6,745. If the same is done for the high month ($26,000 – 19,257) the fixed cost is $6,743.
In dealing with step 6-The break-even point is ready to be inputed using the BEP formula and steps 1-5. The contracted service price with the City of Westchester for 45,000 meals is $5.77. The variable costs per meal is $3.93 per meal, but will earn $5.77.The difference between the variable cost per meal and the revenue per meal is 5.77X = 6745 + 3.93X is $1.84 per