Determining Fixed and Variable Costs and Calculating Contribution Margins and Br
ID: 2401935 • Letter: D
Question
Determining Fixed and Variable Costs and Calculating Contribution Margins and Break-even Points
Charlene r and Jack Thomas own and run the Ripper-Upper Carpet Cleaning
Company. They charge $100 for each carpet-cleaning job.
Their costs are:
?
Sales commission: 20 percent ($20 for each job sold)
?
Operator (the individual who actually pushes the equipment over the carpet: $30 per
carpet cleaning job
?
Gas for truck: average $5 per cleaning job
?
Soap: $2 per job
?
Maintenance of cleaning machine: overhaul of machine costs $300 and has to be
done after every 100 jobs (Hint: divide the $300 overhaul costs by the 100 jobs to
find the overhaul cost per job.
?
Rent, office and warehouse: $500 per month
?
Salaries to Charlene and Tonya total $2,250 per month
?
Receptionist: $1200 per month
?
Insurance: $100 per month
?
Utilities and telephone: $150 per month
Note:
All figures for commissions, salaries, and wages include payroll tax costs.
Your assignment:
Complete this:
Separate the costs into two Lists:
1. Variable costs
. List these with the dollar amount of cost per cleaning job.
2. Fixed costs.
List these with the dollar amount of the costs per month.
3. Compute the contribution margin by subtracting variable costs per job from the
sales price of a job.
4.Compute the break even point by dividing total fixed costs by the contribution
margin. Use the following form to guide your responses.
Case Study: Determining Fixed & Variable Costs
Page
1
of 2 Variable costs: __________________________
____________
__________________________
_____________
__________________________
_____________
__________________________
_____________
__________________________
_____________
__________________________
_____________
Total Variable costs:
_____________
Fixed costs
__________________________
_____________
__________________________
_____________
__________________________
_____________
__________________________
_____________
__________________________
_____________
Computation of contribution margin:
Sales price of cleaning job
$100
Subtract variable costs per job (above)
$_____
Contribution margin
$_____
Breakeven point:
Total fixed costs divided by contribution margin
=$________/$__________=__________cleaning jobs per month.
Determining Fixed & Variable Costs
Explanation / Answer
Answers
Variable Cost per job
Sales Commission
$ 20.00
Operator cost
$ 30.00
Gas for truck
$ 5.00
Soap
$ 2.00
Maintenance of cleaning machine [300/100]
$ 3.00
Total variable cost per job
$ 60.00
Fixed Cost per month
Rent, Office & Warehouse
$ 500.00
Salaries
$ 2,250.00
Receptionist
$ 1,200.00
Insurance
$ 100.00
Utilities & Telephone
$ 150.00
Total Fixed Cost per month
$ 4,200.00
Working
Contribution margin
A
Sale Price for a Job
$ 100.00
B
Total variable cost per job
$ 60.00
C=A-B
Contribution Margin per job
$ 40.00
Working
Break Even point
A
Total Fixed Cost per month
$ 4,200.00
B
Contribution Margin per job
$ 40.00
C=A/B
Break Even point
105 cleaning jobs per month
Variable Cost per job
Sales Commission
$ 20.00
Operator cost
$ 30.00
Gas for truck
$ 5.00
Soap
$ 2.00
Maintenance of cleaning machine [300/100]
$ 3.00
Total variable cost per job
$ 60.00
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