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

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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…
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Fixed Cost, Variable Costs, and BreakEven Point (Financial Management)
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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
a. Newsletter Coordinator = $6,000
b. Assistant = $3, 900
Variable Cost = $4.50
Price of Newsletter = $20
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
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