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

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Receptionist: $1200 per month

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Insurance: $100 per month

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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