Hsm/260 Week 4 Fixed Cost, Variable, Costs, Feb

Hsm/260 Week 4 Fixed Cost, Variable, Costs, Feb

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?
Costs high-low     $26,000- $20,500 = $5,500
Meals high-low     4,900- 3,500 = 1,400
Variable cost per meal     $5,500 ÷ 1,400 = $3.93
Variable cost for the low month   $13,755   ( 3,500x $3.93)
Fixed costs   $6,745             ($20,500-$13,755)
3,665.76 meals per month × 12 months = 43,989.12 meals

PX = A + BX

5.77X = 6,745 + 3.93X
(Subtract 3.93X from each side.)
1.84X = 6,745
(Divide each side by 1.84)
X = 3,666 (monthly BEP)
3,666 × 12 = 43,992 (fiscal-year BEP)
45,000 meals – 43,992 meals = 1008 meals x $1.84 revenue per meal = $1,854.72 profit

Exercise 10.2
It has been two years since the New River Community Council (NRCC) started its
newsletter dealing with state and community...

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