CheckPoint: Calculating Fixed Costs, Variable Costs, and Break-Even Point for a Program
• Calculate the fixed cost, variable costs, and break-even point for the program suggested in Appendix D.
• Base your calculations on the financial data for 2002.
Appendix D.
XYZ NON-PROFIT CORPORATION
INCOME STATEMENT
2002 (A) 2003 (A) 2004 (A)
Revenue
Grant Income $617,169.00 $632,889.00 $1,078,837.00
Customer Fees $506,788.00 $579,824.00 $1,004,874.00
Other $39,567.00 $31,362.00 $107,370.00
Interest $1,541.00 $186.00 $162.00
Total Revenue $1,165,065.00 $1,244,261.00 $2,191,243.00
Expenses
Program services
Payroll and benefits $417,004.00 $520,069.00 $915,787.20
Supplies $125,101.20 $171,622.77 $320,525.52
Rent and Utilities $150,000.00 $150,000.00 $150,000.00
Telephone $24,000.00 $24,000.00 $24,000.00
Other $117,903.00 $79,888.00 $115,999.00
Management and other $351,000.00 $371,101.00 $445,819.00
Total Expenses $1,185,008.00 $1,316,681.00 $1,972,131.00
Excess revenues of expenses ($19,943.00) ($72,420.00) $219,112.00
Customer Count 5962 6821 11822
To calculate the fixed cost, variable costs, and break-even point for the program suggested in Appendix D, we need to understand some concepts.
1. Fixed Costs: Fixed costs are expenses that do not change regardless of the level of program activity. These costs remain constant over a specific period. Examples of fixed costs in this case may include rent and utilities, telephone expenses, and management costs.
2. Variable Costs: Variable costs are expenses that vary with the level of program activity. These costs increase or decrease as the program activities change. Examples of variable costs in this case may include payroll and benefits, supplies, and other expenses directly related to program services.
3. Break-even Point: The break-even point is the level of program activity at which total revenue equals total costs. At the break-even point, there is no profit or loss. It is essential to determine the break-even point to understand the minimum level of activity required to cover all costs.
Based on the financial data for 2002 provided in Appendix D, let's calculate the fixed cost, variable costs, and break-even point for the program.
1. Fixed Costs:
Add up all the fixed cost items for 2002:
Fixed Costs = Rent and Utilities + Telephone + Management and other expenses
= $150,000 + $24,000 + $351,000
= $525,000
2. Variable Costs:
Add up all the variable cost items for 2002:
Variable Costs = Payroll and benefits + Supplies + Other expenses directly related to program services
= $417,004 + $125,101.20 + $117,903
= $660,008.20
3. Break-even Point:
To calculate the break-even point, we need to divide the total fixed costs by the contribution margin per unit:
Break-even Point = Fixed Costs / Contribution Margin per Unit
Contribution Margin per Unit = Total Revenue / Customer Count
= $1,165,065 / 5962
= $195.25 (approximately)
Break-even Point = $525,000 / $195.25
= 2689.51 (rounded up to approximately 2690 activities)
Therefore, to break even, the program suggested in Appendix D needs to have at least 2690 customer activities.
Please note that this calculation is based on the financial data for 2002 only. To get a more accurate analysis, it is recommended to analyze the financial data for subsequent years and consider other factors specific to the program.