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##### Exercise 4 Calculating Fixed Costs, Variable Costs and BEP

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solution

**Question**

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 in service 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 in costs between 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 the total 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

Paper#74244 | Written in 18-Jul-2015

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