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Hsm/260: Fixed Costs, Variable Costs, and Break Essay

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HSM/260: Fixed Costs, Variable Costs, and Break

Fixed Costs, Variable Costs, and Break

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 …show more content…

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?
PX = A + BX
20 X = 6,000. +3,900. + 4.50 X

20 X = 9,900. + 4.50 X

20 X − 4.50 X = 9,900 + (4.50 X − 4.50 X)

15.5X = 9,900.
15.5 X ÷ 15.5 X = 9,900 ÷ 15.5 X

X = 639

Maximum Number = 650
Break Even Point = 639
Surplus Capacity = 11
Newsletter Coordinator’s salary: $6,000 per year
Newsletter assistant salary: $3,900 per year.
Since the two employees have the maximum capacity of 650, there is no slack

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