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Hsm 260 Week 4 Assignment

536 words - 3 pages

Fixed Costs, Variable Costs, and Break-Even Point
Farah Nail

Exercise 10.1
Month Meals Served Total Costs
July 3,500 $20,500 Low
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 High
Step 1. The difference in service volume between high-low periods is (4,900-3,500) 1,400 meals.
Step 2. The difference in costs between the high-low period is ($26,000-20,500) $5,500.
Step 3. The variable cost is now computed. The cost difference $5,500 is divided by the service volume of 1,400. The variable cost per unit of service is $3.93.
Step 4. Total variable costs are now ...view middle of the document...

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.
Step 6. The break-even point is now ready to be computed 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 is $3.93 per meal, but will earn $5.77.The difference between the variable cost per meal and the revenue per meal is 5.77X = 6745 + 3.93X is $1.84 per meal. This leaves 3,666 as 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 yearly salary of the part-time newsletter coordinator is $6,000 and the assistant at $3,900 is a total yearly salary for both of $9,900 a fixed cost. The unit cost of printing, preparing, and mailing six bimonthly issues is $4.50 a variable cost. The newsletter is now $20 per annual yearly subscription. This information plus the BEP formula is used to compute the BEP.
20X = 9,900 + 4.50X
15.50X = 9,900
X = 639
The BEP is 639. The new BEP is a feasible solution because the together the newsletter coordinator and the assistant can handle up to 650 subscribers. There is a slack capacity of 11 subscribers. This is the amount they are able to handle subtracting the BEP.

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