I need to know how to find the fixed cost and the variable cost along with the break even point using this information.
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
November4,700 $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?
To find the fixed cost, variable cost, and break-even point (BEP) using the high-low method, follow these steps:
Step 1: Identify the high and low activity levels
Look at the number of meals served during each month and identify the month with the highest and lowest number. In this case, December has the highest number of meals served (4,900) and July has the lowest number (3,500).
Step 2: Calculate the variable cost per unit
To find the variable cost per unit, subtract the total cost at the low activity level from the total cost at the high activity level, and divide the result by the difference in activity levels.
Variable cost per unit = (Total cost at high activity level - Total cost at low activity level) / (High activity level - Low activity level)
Variable cost per unit = ($26,000 - $20,500) / (4,900 - 3,500)
Variable cost per unit = $5,500 / 1,400
Variable cost per unit = $3.93 (rounded to two decimal places)
Step 3: Calculate the fixed cost
To find the fixed cost, subtract the variable cost per unit multiplied by the low activity level from the total cost at the low activity level.
Fixed cost = Total cost at low activity level - (Variable cost per unit × Low activity level)
Using July as the low activity level:
Fixed cost = $20,500 - ($3.93 × 3,500)
Fixed cost = $20,500 - $13,755
Fixed cost = $6,745
Step 4: Calculate the break-even point (BEP)
The break-even point is the activity level at which total revenue equals total costs, resulting in zero profit. To find the BEP, divide the fixed cost by the contribution margin per unit, which is the selling price per unit minus the variable cost per unit.
BEP = Fixed cost / Contribution margin per unit
Contribution margin per unit = Selling price per unit - Variable cost per unit
In this case, the selling price per unit is not provided, so we will assume it is not known. Therefore, we cannot calculate the exact BEP.
Step 5: Calculate the number of meals needed to reach the BEP
To calculate the number of meals needed to reach the BEP, divide the fixed cost by the contribution margin per unit.
Number of meals needed to reach BEP = Fixed cost / Contribution margin per unit
Without the selling price per unit, we cannot calculate the exact number of meals needed to reach the BEP.
Step 6: Calculate the profit from completing the 45,000-meal contract
To calculate the profit from completing the 45,000-meal contract, multiply the profit per unit (selling price per unit minus variable cost per unit) by the number of meals in the contract.
Profit from completing the 45,000-meal contract = Profit per unit × Number of meals in the contract
Since the selling price per unit is not provided, we cannot calculate the exact profit from completing the 45,000-meal contract.
In summary, based on the information provided, we can calculate the variable cost and fixed cost, but we cannot calculate the exact break-even point, the number of meals needed to reach the BEP, or the profit from completing the 45,000-meal contract without knowing the selling price per unit.