Abe Miguel C.

Bullecer

11907444

K36

1. Average Variable Cost= Total Variable Cost/ Total Output Quantity

= 71,650.23 (Materials Expense) + 163,185.76 (Advertising Expense)/

1,296 (Quantity)

AVERAGE VARIABLE COST= 181.2

2. Fixed Cost Distribution= Price – Average Variable Cost

= 600- 181.20

FIXED COST CONTRIBUTION= 418.80

3. Break-even Quantity= Total Fixed Cost/ Fixed Cost Distribution

= 683,666.54 (Salaries) + 34,638.56 (13th Month Pay) + 32,478.40 (SSS) + 3,837.50

(HDMF) + 9,202.86 (Miscellaneous) + 34,096.24 (Utilities) + 62,750 (Rent)/ 418.80

BREAK-EVEN QUANTITY= 2,112

4. Break-even Cost= Break-even Quantity x Price

= 2,112 x 600
= 1,267,200

ANSWER:

Based from the calculated break-even quantity, Home King’s 600 per hour charge is not feasible with the
total fixed cost of the company. In order to compensate for the company’s expenses, they must be able
to increase the pricing of their services. In the income statement, the company is shown to have a net
loss of 340,984.61. In order for the company to reach break-even, they must either increase their price
or increase the amount of hours of their services. Increasing the amount of hours is not feasible due to
the fact that having 1,296 cleaning hours would give a average of 6-7 hours daily. If we increase that to
2,112 cleaning hours, the employees will become burnt out eventually due to rigorous hours of work.
This is why the best solution for the company is to increase the price of their services in the following
year.