I am working on a project that has to deal with Break even points, fixed cost and varible cost, I am not understanding how to do this. any help would be nice. Here is the balance sheet that I am working of of. I have to find the fixed cost, break even point and variable cost...
XYZ NONPROFIT CORPORATION
BALANCE SHEET
2002 (A) 2003 (A) 2004 (A)
ASSETS
Current assets
Cash $2,576.00 $20,904.00 $86,971.00
Investments $12,000.00 $12,000.00 $12,000.00
Accounts Receivables, net $88,764.00 $47,884.00 $199,905.00
Prepaid expense $956.00 $1,270.00 $4,026.00
Total Current Assets $104,296.00 $82,058.00 $302,902.00
Property and equipment, net
Land $192,300.00 $193,372.00 $193,372.00
Furniture and equipment $59,135.00 $61,053.00 $92,267.00
Leasehold improvements $35,539.00 $23,380.00 $110,463.00
Total property and equipment $286,974.00 $277,805.00 $396,102.00
TOTAL ASSETS $391,270.00 $359,863.00 $699,004.00
LIABILITIES AND NET ASSETS
LIABILITIES
Current liabilities
Accounts payable $74,826.00 $39,951.00 $104,201.00
Accrued payroll and related liabilities $57,888.00 $45,954.00 $66,359.00
Note payable (current portion) $6,303.00 $8,070.00 $166,161.00
Capital lease obligation (current portion) $0.00 $0.00 $312.00
Total current liabilities $139,017.00 $93,975.00 $337,033.00
Note payable (long term) $0.00 $0.00 $1,904.00
Capital lease obligation (long term) $171,229.00 $166,004.00 $0.00
Total liabilities $310,246.00 $259,979.00 $338,937.00
NET ASSETS
Unrestricted ($38,418.00) ($105,127.00) $27,202.00
Temporarily restricted $119,442.00 $205,011.00 $332,865.00
Total net assets $81,024.00 $99,884.00 $360,067.00
TOTAL LIABILITIES AND NET ASSETS $391,270.00 $359,863.00 $699,004.00
2 answers
Variable Cost =
=
= $3.93
Variable Cost = $3.93 per unit
Fixed Costs:
At an activity level of 4,900, Total Cost = $26,000
Since Total Cost = Variable Cost + Fixed Cost
So:
$26,000 = Fixed Costs + $3.93x (where x is the number of meals served)
$26,000 = Fixed Cost + $3.93(4,900)
$26,000 = Fixed Cost + $19,250
Fixed Cost = $26,000 - $19,250
= $6,750
Fixed Costs = $6,750
Since the Price of the meal is $5.77, and since at BEP, Revenue = Cost, we can calculate the BEP as follows:
$5.77x = $6,750 + $3.93x
$5.77x - $3.93x = $6,750
$1.84x = $6,750
x = $6,750 ÷ $1.84
x = 3,669 meals (monthly)
The annual BEP = 3,669 × 12
= 44,022 meals
To reach the BEP, the WHDM program needs to provide 44,022 meals during the fiscal year.
If 45,000 meals are served, then Total revenue would be:
45,000 × $5.77 = $259,650
At 44,022 meals (BEP), total revenue = 44,022 × $5.77 = $254,007
Therefore if the 45,000 meals contract is completed, the profit = $259,650 - $254,007
= $5,643
If 45,000 meals are served, then Profit would be $5,643
Exercise 10.1—Answer Key
Westchester Home Delivered Meals Program
(Profit Analysis)
Total Contracted Meals = 45,000
Break Even Point = 43,992
_______
1,008
Revenue
1,008 Meals
@ $5.77 = $5,816.16
Total Cost
Per 1,008 Meals
@ $3.93
Variable Costs = $3,961.44
Total Profit = $5,816.16 - $3,961.44 = $1,854.72
Exercise 10.2
New River Community Council
The new BEP is 387
The new BEP is not a feasible solution because there will not be much profit.
Slack capacity will exist
Nicole,
You did not provide the calculations for this exercise, so I do not know how you worked out this problem.
Exercise 10.2
New River Community Council
Newsletter Break Even Point
PX = A + BX
20X = 6,000 + 3,900 + 4.50X
20X = 9,900 + 4.50X
(Subtract 4.50 X From Both Sides)
15.5X = 9,900
X = 639
Maximum Capacity = 650
Break Even Point = 639
Surplus Capacity = 11
Note: There are two elements of fixed costs in this example. The salary
of the Newsletter Coordinator ($6,000 per year) and the salary of
the assistant ($3,900 per year)
Exercise 10.3
Mountain View Senior Adult Program
$4000/month allocated
$65/ client
$4000/month full-time salary
$10/client for supplies
120 maximum clients/ nurse/ month
12*4000=$48000 allocated/year
Let X=number of clients per year
$4000*12=$48000/year full-time salary/nurse
Break-Even Points
1 Full-Time Nurse
48000+65X=(48000+10X)
48000-48000=10X-65X
-55X=0
X=0 Clients/year
2 Full-Time Nurses
48000+65X=2*48000+10X
48000-96000=10X-65X
-55X=-48000
X=48000/55=873 Clients/year
X=2*12*120=2880 maximum clients/year
3 Full-Time Nurses
48000+65X=144000+10X
48000-144000=10X-65X
-55X=48000-144000
X=(48000-144000)/-55=1745 Clients/year
X=3*12*120= 4320 maximum clients/year
Part-Time Nurses
48000+65X=12*45*X
12*45*X=48000
X=48000/(12*45)=89 Clients/year
The break-even points differ because the total salaries are different.
With 1 full-time nurse the break-even point occurs when there are no clients. I do not think that this is not feasible because the whole amount allocated would go to the nurse and the nurse wouldn’t have to do anything for their salary.
If I were the executive director I would choose the direct method with three nurses because the break-even point would allow the maximum number of clients to be served compared to the other choices.
Exercise 10.3—Answer Key
Mountain View Senior Adult Program
Direct Service/Contract Service Delivery Decision
1. Break Even Point (With One Nurse)
PX = A + BX
65X = 4000 + 4000 + 10X
(4000 overhead + 4000 salary for one nurse)
65X = 8000 + 10X
(Subtract 10X from Both Sides)
55X = 8000
(Divide Each Side By 55)
X = 146 hours of service (BEP per month)
Note: This BEP is outside the feasible range because one nurse
can only provide 120 hours of service per month.
Surplus Capacity (120 - 146 = None)
Exercise 10.3
Mountain View Senior Adult Program
Direct Service/Contract Service Delivery Decision
2. Break Even Point (With Two Nurses)
PX = A + BX
65X = 4000 + 4000 + 4000 + 10X
(4000 overhead + 8000 salary for two nurses)
65X = 12000 + 10X
(Subtract 10X from Both Sides)
55X = 12000
(Divide Each Side By 55)
X = 219 hours of service (BEP per month)
Note: This BEP is within the feasible range because two nurses
can provide a maximum of 240 (120 x 2) hours of
service per month.
Surplus Capacity (240 - 219 = 21)
Exercise 10.3
Mountain View Senior Adult Program
Direct Service/Contract Service Delivery Decision
3. Break Even Point (With Three Nurses)
PX = A + BX
65X = 4000 + 4000 + 4000 + 4000 + 10X
(4000 overhead + 12000 salary for three nurses)
65X = 16000 + 10X
(Subtract 10X from Both Sides)
55X = 16000
(Divide Each Side By 55)
X = 291 hours of service (BEP per month)
Note: This BEP is within the feasible range because two nurses
can provide a maximum of 360 (120 X 3 ) hours of
service per month.
Surplus Capacity (360 - 291 = 69)
Exercise 10.3—Answer Key
Mountain View Senior Adult Program
Direct Service/Contract Service Delivery Decision
1. Break Even Point (With Contract Service Delivery)
PX = A + 45X
65X = 4000 + 45X
(4000 overhead)
65X = 4000 + 45X
(Subtract 45X from Both Sides)
20X = 4000
(Divide Each Side By 20)
X = 200 hours of service (BEP per month)
Note: This BEP is within the feasible range because one, two
three or any number of contract nurses can be used.
Surplus Capacity (200 - 200 = ZERO)
Overall, you did well with the assignment. There was one problem/concern with the Exercise #2. The most important point here is that students will read the instructions and try to calculate the solutions.
I have included the answer key/solution
1 answer