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Individual Fixed Costs, Variable Costs, and Break-Even Point |
Resource: Ch. 10 in Financial Management Complete Exercises 10.1 & 10.2 on pp. 146–47. Post your final answers as a Microsoft® Word attachment |
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?
Exercise 10.2
It has been two years since the New River Community Council (NRCC) started its
newsletter dealing with state and community funding opportunities for human service
agencies. The current number of subscribers to the newsletter is 525. During the
second year, the NRCC hired a new part-time newsletter coordinator (social work
student). The NRCC has raised the salary of the part-time newsletter coordinator to
$6,000 per year and has also hired another part-time student as an assistant for ten
hours a week. The assistant is to be paid $75 per week or $3,900 per year. Together
the newsletter coordinator and the part-time assistant believe they can handle up to
650 newsletter subscribers. Beyond this number, the newsletter program will
require still more staff resources. In order to help cover the cost of the new part-time
assistant, the executive director has also decided to increase the annual subscription
price of the newsletter to $20. Additionally, the variable costs of preparing, printing,
and mailing six bimonthly issues of the newsletter have risen to $4.50.
Recompute the BEP for the newsletter program. What is the new BEP? Is the
new BEP a feasible solution? Why or why not? Will any slack capacity exist? If so,
how much? If not, why not?
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