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### Fixed Cost

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# Fixed Cost

By | April 2012
Page 1 of 2
Recompute fixed costs, variable cost, and the BEP.
STEP 1:
High Month- Dec. 4900 Meals
Low Month- July 3500 Meals
Difference of 1400 meals
STEP 2:
Dec. cost \$26,000
July cost \$20,500
Cost Difference of \$5500
STEP 3:
Divided the cost difference \$5500 by the 1400 meal difference 5500/1400 = 3.93 The variable cost per meal is \$3.93
STEP 4:
To get the total variable cost for the low month you multiple the low month (July) meal amount 3500 by the variable cost per meal \$3.93 3.93(3500) = 13,755 Total variable cost is \$13,755
STEP 5:
To get fixed cost you subtract the total variable cost (\$13,755) from the cost of the low month (July) cost \$20,500 \$20,500 - \$13,755 = \$6,745
The total fixed cost is \$6,745
STEP 6:
To compute the BEP use formula
PX = A + BX
5.77X = 6,745 + 3.93X
5.77X – 3.93X = 6,745 + 3.93X – 3.93X
1.84X = 6,745
1.84X/1.84X = 6,745/1.84X
X = 3,666
The monthly BEP is 3,666
The fiscal year BEP is 3,666 x 12 = 43,992

The WHDM program will need to provide 11,194 meals during the fiscal year to reach BEP.

The WHDM was contracted to provide 45,000 meals its BEP is 43,992, which means that 1008 meals will generate a profit. The program earns \$5.77 per meal, but it cost \$3.93 to provide the meal, which allows the program to make \$1.84 per meal. So if the program completes the 45,000 meal contract it will make \$1,854.72 profit

Recomputing the BEP for the newsletter program by using the formula PX = A + BX
20X = 9900 + 4.50X
Subtract 4.50 from both sides
15.5X = 9900
Divided both sides by 15.5
X = 639
The new BEP is 639
The new BEP is feasible because the newsletter coordinator and the part-time assistant believe they can handle up to 650 subscribers. 639 is less than 650 so there will be slack capacity.

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