Fixed Costs, variable costs, and break-even point

Exercise 10 .1

At 4 ,900 meals the At 3 ,500 meals the 1 ,400 additional meals at increased 5 ,500 costs Variable Costs (4 ,900 x 3 .93 19 ,257

Fixed Costs 6 ,743

Exercise 10 .2

Salary of newsletter coordinator 6 ,000

Wage of assistant 3 ,900 Annual subscription per subscriber 20 .00

Variable cost per subscriber 4 .50

Contribution per subscriber 15 .50 The employment of the newsletter coordinator and his assistant is a viable solution since the maximum subscriptions that this additional staff can

handle amounts to 650 newsletter subscribers . This is in excess by 11 subscribers from the break-even point . Therefore the organization will be capable to perform a profit from such growth strategy

Exercise 10 .3

1 ) The Service is Contracted

Price of Service per visit 65

Contact nurses rate per visit 45

Contribution per visit 20 2 ) One full-time Nurse is hired

Price of Service per visit 65

Contact nurses rate per visit 10

Contribution per visit 55

Nurse Salary 4 ,000

Indirect Costs 4 ,000

3 ) Two full-time nurses are employed

Nurse Salaries 8 ,000

Indirect Costs 4 ,000

4 ) Three full-time nurses are hired

Nurse Salaries 12 ,000

Indirect Costs 4 ,000

The break-even point of the first instance differs from the other due to a different contribution per unit and fixed costs . The latter three differ between each other due to different fixed costs stemming from the nurses salary . The only fixed cost that is common to all and included in all instances consists of the indirect expenditure

Envisaged profit if one full-time nurse is employed

Service Revenue 65 x 120 7 ,800

Variable Costs 10 x 120 1 ,200

Contribution 6 ,600

Fixed Costs 8 ,000

Net Loss 1 ,400

Envisaged profit if two full-time nurses are employed

Service Revenue 65 x 120 x 2 15 ,600

Variable Costs 10 x 120 x 2 2 ,400

Contribution 13 ,200

Fixed Costs 12 ,000

Net Income 1 ,200

Envisaged profit if three full-time nurses are employed

Service Revenue 65 x 120 x 3 23 ,400

Variable Costs 10 x 120 x 3 3 ,600

Contribution 19 ,800

Fixed Costs 16 ,000

Net Income 3 ,800

Note : These profit statements were performed on the presumption that there is full demand for the maximum service hours performed by the nurses

The alternatives of employing nurses are viable provided that more than one nurse is employed and the assumption taken holds . Indeed the option of employing one nurse is never viable since a nurse can provide a maximum of 120 visits and in to break-even 145 visits are necessary . If it is however , envisaged that demand for the service will be low , it is ideal to adopt the first choice of service contracts This decision stems from the lowest break-even point stemming from such alternative in relation to the other options

References

Lucey T (2003 . Management Accounting . Fifth Edition . New York Continuum

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