# Variable Costs

Instructor: Greg O’Donnell Fixed Costs, Variable Costs, and Break-Even

Point Exercise 10.

1. Month Meals Served Total Costs July 3,500 \$20,500Low August 4,000 22,600 September 4,200 23,350 October 4,600 24,500 November 4,700 25,000 December 4,900 26,000High 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 of \$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 inputted 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 are \$3. 93 per meal, but will earn \$5. 77. The difference between the variable cost per meal and the revenue per meal is 5. 7X = 6745 + 3. 93X is \$1. 84 per meal. This leaves 3,666 which is the monthly BEP. Then 3,666? 12 = 43,992 is the fiscal year BEP. The WHDM needs to provide 43,992 meals during the fiscal year to reach the BEP. The difference between the contracted meals 45,000 and the BEP 43,992 is 1,008.

The potential profit is 1,008 meals? \$1. 84 a total profit of \$1,855.

Exercise 10.

2. The newsletter yearly salary coordinator is \$6,000 and the assistant total is \$3,900 for both or \$9,900 a fixed cost. The unit cost of preparing, printing, and the mailing is \$4. 0 for the period of six bi-monthly issues is \$4. 50 this is a variable cost. This newsletter is now \$20 per annual yearly subscription. This information plus the BEP formula is used to add and complete the BEP. 20X = 9,900 + 4. 50X 15. 50X = 9,900 X = 639 In dealing with the BEP, I believe it will be 639. The new BEP is an acceptable solution because joined with the newsletter coordinator and with the corporation of handling up to the amount of 650 subscribers. There also is an amount of 11 subscribers that are able to subtract the BEP Dora McKinney.

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