Exercise 4 Calculating Fixed Costs, Variable Costs and BEP

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Month

Meals Served (Service Volume)

Total Costs

July

3,600

$21,000.00

August

4,100

$22,000.00

September

4,300

$23,150.00

October

4,700

$24,500.00

November

4,800

$25,500.00

December

4,900

$26,200.00

 

The total contracted meals for the year is 33,000

The contracted cost per meal is 6.50

 

 

Step 1:Compute the difference inservice volume (number of meals served) between the high and the low time periods (months).  Subtract the low time period from the high time period.

High Time Period Service Volume

Low Time Period Service Volume

Difference in Service Volume

   

 

Step 2:Compute the difference incostsbetween the high and low time periods (months).  Subtract the low time period from the high time period.

High Time Period Costs

Low Time Period Costs

Difference in Cost

   

 

Step 3:Compute the variable cost per unit of service. Divide cost by service volume

Cost (Difference between high & low time periods – Step 2)

Service Volume(Difference between high & low time periods – Step 1)

Variable Cost Per Unit

   

 

 

Step 4:Compute thetotal variable costs for the low time period. Multiply variable cost per unit by service for low time period.

Variable Cost Per Unit (answer from Step 3)

Service For

Low Time Period

Total Variable Cost

   

 

 

 

Step 5:Compute total fixed costs for the low time period.   Subtract total variable cost from low time period cost.

Low Time Period Cost

Total Variable Cost (answer from Step 4)

Total Fixed Cost

   

 

Step 6:Compute the Break-Even Point using the BEP Formula PX = A + BX, where:

 

P = Cost Per Meal

X = What you are solving for

A = Total Fixed Costs (from Step 5)

B = Variable Cost Per Unit (from Step 3)

 

Show calculations below:

 

 

 

 

 

 

 

Step 7:Compute the BEP for the year by multiplying the answer from Step 6 by 12.

BEP (from Step 6)

Months in the Year

Annual BEP

   

 

Step 8: Determine the number of meals by subtracting the BEP for the year (answer from Step 7) from the Total Contracted Meals (see scenario). 

Total Contracted Meals

BEP

Number of Meals

   

 

 

Step 9: Determine the Revenue using the number of meals (answer from Step 8) multiplied by the contracted cost per meal.

Number of Meals

Cost Per Meal

Revenue

   

 

 

 

 

 

 

Step 10: Determine the Total Cost using the number of meals (answer from Step 8) multiplied by the variable cost (Step 3).

Number of Meals

Variable Cost

Total Cost

   

 

Step 11:Subtract the Total Cost (Step 10) from the Revenue (Step 9) and this is your Profit

Revenue

Total Cost

Profit

   

 

 

 

 

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