Variable Cost

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Latasha Thomas
January 20, 2013
HSM 260
Jerome Anderson

Exercise 10.1

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?

The variable cost of service is $3.93 during the fiscal year the WHDM should provide 1,011 meals to reach their BEP of $3,665.76. The total profit the program will earn if it completes its contract of 45,000 meals is $1,859.77. 1. The difference = subtracting the low from the high with the months given. 4,900 – 3,500 = 1,400

The differences in costs = subtracting the low from the high time period costs $26,000 - $20,500 = $5,500

The variable cost per unit = dividing the difference in cost by the difference in service $5,500 / 1,400 = $3.93

Total variable cost = multiplying the variable cost by the low time period 3,500 x $3.93 = $13,755.

Total fixed cost = subtracting the total variable cost from the low time period $20,500 - $13,755 = $6,745

Computing the Break Even Point = Px = A + Bx = $3,665.7 P will = $5.77 ($5.77x – 6745 + $3.93x) X will = $1.84 ($5.77 - $3.93 – 6745 + ($3.93 - $3.93)
A will = 6,745 ($1.84x – 6745)
B will= $3.93 ($1.84x / $1.84x – 6754 / $1.84x)
BEP for year = multiply BEP by 12
$3,665.76 x 12 = $43,989.12

Number of meals = subtracting BEP for year from total contracted meals WHDM program profit 45,000 = meal contract
1,008 Revenue
1,008 Meals at $5.77= $5,816.16
Total Cost per meal 1,008 at $3.93 =$3,961.44
Total Profit = total cost of the meals

Exercise 10.2
The annual salary of the part-time newsletter planner is $6,000. The planner’s assistant has an annual salary of $3,900 (6,000 + 3,900 = 9,900). This is the total of fixed cost. The variable cost per item for putting together six bimonthly newsletters is $4.50. The...
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