Week 6 HSM 260

Exercise 10.1
1. The difference in service volume between the high and low time periods is calculated by subtracting the month with the lowest number of meals served from the month with the highest number of meals served.
• 4,900 – 3,500 = 1,400
2. The difference in costs between high and low months is calculated by subtracting the cost lowest month from the highest month.
• 26,000 – 20,500 = 5,500
3. Variable cost per meal is calculated by dividing the cost difference by the difference in service volume.
• 5,500 / 1,400 = 3.93
• $3.93 per meal
4. Total variable cost for the lowest time period is calculated by multiplying the service volume by the variable cost per meal. The same calculation is used to determine the total variable cost for the highest time period as well.
• Low month total variable cost: $13,755
• High month total variable cost: $19,257
5. The total fixed costs for the lowest month is calculated by subtracting the total costs of the lowest month, or the highest month, from the total variable costs.
• Total fixed cost for low month: $6,745
• Total fixed cost for high month: $6,743
ANSWERS FOR EXERCISE 10.1
1. What are the variable costs?
• Per meal: $3.93
• Total variable costs: $5,502
2. What are the fixed costs?
• Low month: 20,500 – 13,755 = $6,745
• High month: 26,000 – 19,257 = $6,743
3. How many meals will the WHDM program need to provide during the fiscal year to reach the BEP?
• 43,992
4. How much profit will the program earn if it completes its 45,000 – meal contract with the City of Westchester?
• $3.93 per meal
• $5.77 revenue
• 45,000 – 43,992 = 1,008
1,008 x 1.84 = 1,885
Total potential profit is $1,855
Exercise 10.2
1. What is the new BEP?
• 20X = 9,900 + 4.50X
15.50X = 9,900
X = 639
BEP = 639
2. Is the new BEP a feasible solution? Why or why not?
• It is a feasible solution because this proves that the assistant and the newsletter coordinator can handle the amount of subscribers, 639, without