Free

# Fixed Cost, Variable Costs, and BreakEven Point (Financial Management) - Essay Example

Summary
The BEP is feasible as the maximum number of subscriber which can be serviced by the current resource is 650. There will be slack capacity of 11, the difference between the BEP and the maximum number of subscribers.
The BEPs differ because of the different levels of cost to be incurred in each alternative…

## Extract of sample "Fixed Cost, Variable Costs, and BreakEven Point (Financial Management)"

10 Variable Cost a. Difference in Service Volume 4, 900 - 3,500 400 b. Difference in Cost \$26,000 - \$20, 500 = \$5, 500 c. Variable Cost per Meal
\$5, 500 / 1400 = \$ 3.93 per meal
Fixed Cost (from July data)
3, 500 * \$3.93 = \$13, 755
\$20, 500 - \$13, 755 = \$6, 745
BEP
PX = A + BX
\$5.77 X = \$6, 745 + \$3.93 X
\$5.77 X - \$3.93 X = \$6, 745

\$1.84 X = \$6, 745
X = 3, 666
BEP = 12 X = 43, 992
At 45, 000 meals, profit will be:
\$5.77 (45, 000) - \$3.93 (45, 000) - \$6, 745
\$ 82, 800 - \$ 6, 745
= \$76, 055
Exercise 10.2
Subscribers = 525
Fixed Costs
b. Assistant = \$3, 900
Variable Cost = \$4.50
BEP
PX = A + BX
\$20 X = \$9, 900 + \$4.50 X
\$15.5 X = \$9, 900
X = 639
The BEP is feasible as the maximum number of subscriber which can be serviced by the current resource is 650. There will be slack capacity of 11, the difference between the BEP and the maximum number of subscribers.
Exercise 10.3.
(1) the service is contracted
PX = A + BX
\$65 X = \$4000 + \$45X
\$65 X - \$45 X = \$4000
\$20 X = \$4000
X = 200
(2) one full-time nurse is hired
PX = A + BX
\$65 X = \$8000 + \$10 X
\$55X = \$8000
X = 146
(3) two full-time nurses are hired
PX = A + BX
\$65 X = \$12000 + \$10 X
\$55 X = \$12000
X = 218
(4) three full-time nurses are hired.
PX = A + BX
\$65X = \$16,000 + \$10X
\$55X = \$16,000
X = 290
The BEPs differ because of the different levels of cost to be incurred in each alternative. Among the given alternatives, only alternative 2 (hire one full time nurse) is not feasible because the BEP is less than the total time a single nurse can supply in a month (146 vs. 120). I will choose to contract the service because it has the lowest BEP which suggests higher possibility of profitability. Read More
Cite this document
• APA
• MLA
• CHICAGO
(“Fixed Cost, Variable Costs, and BreakEven Point (Financial Management) Essay”, n.d.)
Fixed Cost, Variable Costs, and BreakEven Point (Financial Management) Essay. Retrieved from https://studentshare.org/miscellaneous/1526950-fixed-cost-variable-costs-and-breakeven-point-financial-management
(Fixed Cost, Variable Costs, and BreakEven Point (Financial Management) Essay)
Fixed Cost, Variable Costs, and BreakEven Point (Financial Management) Essay. https://studentshare.org/miscellaneous/1526950-fixed-cost-variable-costs-and-breakeven-point-financial-management.
“Fixed Cost, Variable Costs, and BreakEven Point (Financial Management) Essay”, n.d. https://studentshare.org/miscellaneous/1526950-fixed-cost-variable-costs-and-breakeven-point-financial-management.
Click to create a comment or rate a document

## CHECK THESE SAMPLES OF Fixed Cost, Variable Costs, and BreakEven Point (Financial Management)

### Management

9 Pages(2250 words)Essay

### Allocation of Fixed Costs

...of costing provide different types of results. Overheads are the main portion of the product costs. In recent technological trends where IT costs are the main portion of overheads then the true profitability or cost of products cannot be determined without using appropriate costing methodology. That’s why it is argued that activity based costing is the best technique for the allocation of IT related cost. BIBLIOGRAPHY: Cio.co.uk. (2010). How to create a system for charging back it services. United Kingdom: CIO.CO.UK. Retrieved from http://www.cio.co.uk/article/3217465/how-to-create-a-system-for-charging-back-it-services/...
3 Pages(750 words)Essay

### Fixed and Variable Costs

...is variable. 2. A company's break-even point is its sales volume at which its total costs equal its total revenues. This means that at the break-even point, the company is making neither any profit nor any loss. If a company is operating below its break-even point it would not be able to exist in the long run as its costs (fixed and variable) would not be covered by the revenues (Susan 2008) . If the company is operating above the breakeven point, then it will be earning profits and at least be able to cover its fixed and variable...
2 Pages(500 words)Essay

### Variable and Fixed Costs

...and the contribution of sales of each unit in covering indirect and fixed costs of a business. For example, if a product is sold at \$ 15 and it’s per unit variable cost is \$11; each unit sale will therefore make \$ 4 as contribution to the company’s fixed costs. Therefore, if the fixed costs of a business are \$ 20,000, it will have to sell 5,000 units in order to attain a breakeven point. References Martin, J.R. (n.d.). Management Accounting: Concepts, Techniques, and Controversial Issues – Chapter 1: Introduction. Management and...

### Allocation of Fixed Costs

...Allocation of Fixed Costs Part I: Activity based management and activity based costing (ABC) benefits in an organization The main differentiation point that makes ABC unique from other allocation methods is its focus on minimization of waste and idle capacity in the production processes. Activities within the production process to which indirect costs can directly be attributed to production are identified for estimations and allocation. The entire activity costing enables the management to single out cost element on each product using activity costing product...

### Variable and Fixed Costs

...10   Total Variable Cost 190 8,000 1,520,000 Contribution 90 8,000 720,000 Fixed – Overhead 200,000 Fixed – Selling & Admin 100,000 Net Income 420,000         The formula to calculate the break even number of units is fixed cost divided by contribution margin per unit (Garrison et al, 2009). At a selling price of \$250 per unit and direct material cost per unit of \$100, the breakeven number of units, are 5,000. If Herrested Company wants to remain at no profit/no loss position, it would at least need to produce 5,000 units which would be exactly enough to cover the...
2 Pages(500 words)Essay

### Variable and Fixed Costs

...of a break-even analysis is that it depicts the relationship between variable costs, fixed costs and selling prices. Example below indicates the computation of a break-even for ABC Company. Fixed Costs Office rent \$ 120 Monthly insurance \$ 50 Total fixed costs \$170 Variable costs Raw materials \$ 5 Labor \$ 4 Total variable...
2 Pages(500 words)Essay

### Allocating Fixed Costs

... assigns the costs to the activities that are the main drivers of the overhead and these activities are later assigned to the products on the basis of their demand for each activity. Activity Based Management is basically the use of such ABC system towards improving strategic decisions and efficiency. It further uses the ABC information to choose between products and analyze the activities that need to be employed in order to get those products manufactured. The focus is mainly towards identifying using those activities which add value. DHL is one of the earliest implementer of the ABC and the ABM system. DHL is a German logistics company known for its expertise in providing international express mail services. It is considered... Finance &...
3 Pages(750 words)Essay

### CASE 3- Variable and Fixed Costs

...Variable and Fixed Costs The paper below approaches to explain the differences between variable and fixed costs. It also evaluates and explains the different approaches (absorption costing approach and variable costing approach) of making income statements under cost and management accounting concepts. And what is the use of each of the explained approaches. Further the concept of breakeven points is explained, the method to come to the breakeven point is also explained and the purpose of...
3 Pages(750 words)Essay

### Categorize Costs as Fixed, Variable and Semi-Variable for a Given Scenario

...or decimal. If the C/S ratio is 0.4, for every £1 of sales revenue, 40 pence will be a contribution. C/S ratio =Contribution per unit/Sales price per unit or C/S ratio= Total contribution /Total sales revenue Cost-Volume-Profit analysis looks at changes in profits as variable costs, fixed costs, sales price and quantity change. It is also called “what if?” analysis and it particularly looks at sales less variable costs. It is also called contribution. With the contribution, management can easily understand the level of sales that they are likely to start making profits or cover all...
2 Pages(500 words)Assignment