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Fixed Costs, Variable Costs, and Break-Even Point


Fixed Costs, Variable Costs, and Break-Even Point

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Resource:Ch. 10 inFinancial Management

CompleteExercises 10.1 & 10.2 on pp. 146–47.

Postyour final answers as a Microsoft®Word attachment

Exercise 10.1

During the sixth month of the fiscal year, the program director of the Westchester

Home-Delivered Meals (WHDM) program decides to again recompute fixed costs,

variable costs, and the BEP using the high–low method. Here are the number of

meals served and the total costs of the program for each of the first six months:

Month Meals Served Total Costs

July 3,500 $20,500

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

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?

Exercise 10.2

It has been two years since the New River Community Council (NRCC) started its

newsletter dealing with state and community funding opportunities for human service

agencies. The current number of subscribers to the newsletter is 525. During the

second year, the NRCC hired a new part-time newsletter coordinator (social work

student). The NRCC has raised the salary of the part-time newsletter coordinator to

$6,000 per year and has also hired another part-time student as an assistant for ten

hours a week. The assistant is to be paid $75 per week or $3,900 per year. Together

the newsletter coordinator and the part-time assistant believe they can handle up to

650 newsletter subscribers. Beyond this number, the newsletter program will

require still more staff resources. In order to help cover the cost of the new part-time

assistant, the executive director has also decided to increase the annual subscription

price of the newsletter to $20. Additionally, the variable costs of preparing, printing,

and mailing six bimonthly issues of the newsletter have risen to $4.50.

Recompute the BEP for the newsletter program. What is the new BEP? Is the

new BEP a feasible solution? Why or why not? Will any slack capacity exist? If so,

how much? If not, why not?

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