# Fixed Costs

## Fixed Costs

Fixed Costs, Variable Costs, and Break-Even Point
Betty Venson
November 24, 2013

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 re-compute 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
Re-compute 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?

1. High-Low Costs = \$26,000 - \$20,500 = \$5,500
2. High-Low Meals = \$4,900 - \$3,500 = \$1,400
3. Variable Costs Per Meal = \$5,500 / \$1,400 = \$3.93
4. Variable Costs for Low Months = \$3,500 x \$3.93 = \$13,755
5. Fixed Costs = \$20,500 - \$13,755 = \$6,745
6. 3.66.75 meals per month x 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
Fiscal Year BEP = 3,666 x 12 = 43,992
4,5000 meals – 43,992 meals = 1,008 meals x 1.84 (revenues per meal = \$1,845.72 profit

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