Fixed Cost, Variable Cost, And Break-Even Analysis

Fixed Cost Variable Cost And Breakassignment Fixed Costs Variable

Recompute fixed costs, variable costs, and the break-even point (BEP) for the Westchester Home-Delivered Meals (WHDM) program using the high-low method based on the provided data for the first six months. Determine the variable costs per meal, fixed costs, the total meals needed to reach the BEP during the fiscal year, and the profit if the program fulfills a 45,000-meal contract.

Analyze the second exercise by calculating the new BEP for the New River Community Council (NRCC) newsletter program, considering the changes in costs, subscription price, and capacity limits. Evaluate the feasibility of the new BEP, possible slack capacity, and interpret the implications for program planning.

Paper For Above instruction

The calculation of fixed and variable costs, along with the determination of the break-even point (BEP), are fundamental aspects of managerial accounting that assist organizations in analyzing their cost structures and making informed strategic decisions. In the context of the Westchester Home-Delivered Meals (WHDM) program, applying the high-low method enables a precise estimation of fixed and variable costs based on existing operational data. Similarly, for the New River Community Council (NRCC), understanding the new BEP after cost adjustments informs feasibility and capacity planning.

Analysis of WHDM Program’s Cost Structure

The high-low method involves selecting the month with the highest and lowest activity levels—measured here in meals served—and then calculating the variable cost per meal from the difference in total costs. The highest month identifiable in the data provided is December with 4,900 meals served at a total cost of $26,000, while July with 3,500 meals and a least cost of $20,500 represents the lowest activity level. Using these figures, the variable cost per meal is calculated as follows:

Variable Cost per Meal = (Cost at High Activity - Cost at Low Activity) / (High Activity Meals - Low Activity Meals)

Variable Cost per Meal = ($26,000 - $20,500) / (4,900 - 3,500) = $5,500 / 1,400 ≈ $3.93

Next, deducing the fixed costs involves substituting the variable cost back into the total cost equation for either month. For example, in July:

Total Costs = Fixed Costs + (Variable Cost per Meal × Number of Meals)

Solving yields:

Fixed Costs = Total Costs - (Variable Cost per Meal × Meals Served) = $20,500 - ($3.93 × 3,500) = $20,500 - $13,755 ≈ $6,745

This fixed cost estimate indicates the baseline expenditure independent of meal volume. The variable cost per meal is approximately $3.93, and fixed costs are around $6,745.

To identify the number of meals required to reach the BEP during the fiscal year, we analyze total costs and revenue assumptions. Assuming the revenue per meal remains consistent, the BEP occurs when total revenues equal total costs:

BEP (in meals) = Fixed Costs / (Revenue per Meal - Variable Cost per Meal)

With unknown revenue per meal, we typically estimate from the given data or assume a certain profit margin. If, for instance, the program charges $10 per meal, then:

BEP = $6,745 / ($10 - $3.93) ≈ $6,745 / $6.07 ≈ 1,111 meals

Thus, the program needs approximately 1,111 meals to break even during the fiscal year under these assumptions. To fulfill a 45,000-meal contract, the total profit would be: (Total Revenue - Total Costs)

Total Revenue = 45,000 × $10 = $450,000

Estimated total costs for 45,000 meals are:

Total Costs = Fixed Costs + (Variable Cost per Meal × 45,000) = $6,745 + ($3.93 × 45,000) ≈ $6,745 + $176,850 = $183,595

Correspondingly, the profit would be:

Profit = Total Revenue - Total Costs ≈ $450,000 - $183,595 = $266,405

This illustrates the program's profitability potential if operating at full contract capacity.

Analysis of NRCC Newsletter Program’s BEP

The calculation for the NRCC newsletter program’s BEP considers increased costs, subscription fees, and capacity constraints. The program's fixed costs include the salaries for the newsletter coordinator ($6,000) and assistant ($3,900), totaling $9,900 annually. Variable costs for printing, mailing, and preparation are now $4.50 per newsletter, and the subscription fee per subscriber is increased to $20.

The total contribution margin per subscriber is:

Subscription Price - Variable Cost = $20 - $4.50 = $15.50

The BEP in subscribers is thus:

BEP = Fixed Costs / Contribution Margin per Subscriber = $9,900 / $15.50 ≈ 639 subscribers

Given that the current subscriber base is 525 and the maximum capacity is 650 subscribers, reaching the BEP of approximately 639 subscribers is feasible. Since 525 subscribers are already enrolled, the program needs to attract an additional 114 subscribers to meet the BEP.

There is minimal slack capacity (11 subscribers), indicating that the program is operating near its maximum capacity. The feasibility of reaching the BEP depends on marketing effectiveness and subscriber retention strategies.

If the program successfully increases subscribers to meet the BEP, it will generate sufficient revenue to cover its costs, ensuring sustainability. Any surplus capacity (which appears to be nearly exhausted) suggests that expanding beyond 650 subscribers would require additional staffing or resources, constituting a capacity constraint.

In conclusion, the revised BEP for the newsletter program is approximately 639 subscribers, which is within current capacity limits, making it a feasible target with focused efforts.

Implications for Management

These analyses highlight the importance of understanding fixed and variable costs for effective financial planning. For the WHDM program, accurately estimating costs and the BEP guides revenue goals and operational scaling. For the NRCC newsletter, understanding capacity constraints and cost recovery ensures strategic decisions regarding marketing and resource allocation. Both exercises exemplify how managerial accounting tools such as the high-low method and BEP analysis are vital in non-profit and service-oriented organizations to safeguard fiscal sustainability and optimize resource utilization.

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