6.4 Break-Even Analysis

The city department for municipal solid waste (MSW) collection serves about 250,000 households per year who all own one garbage container. The collection fee is $2 per 96 gallon container. Thus, the revenue in this example would be $500,000. On the cost side, we have annual fixed cost that are composed of administrative services ($35,000) and equipment lease ($85,000). The variable cost per container is composed of a landfill charge ($1) and equipment operation on collection routes ($0.40). Suppose that due to inflation, the landfill considers increasing the fee from $1.00 to $1.30 per container. The table below calculates the total revenue, fixed cost, variable cost, and total cost and the old and proposed landfill (LF) fee.

Item	Current LF Charge	New LF Charge
Number of containers	250,000	250,000
Collection Fee	$2	$2
Revenue	$500,000	$500,000
Administration	$35,000	$35,000
Equipment Lease	$85,000	$85,000
Fixed Cost	$120,000	$120,000
Landfill charge	$1.00	$1.30
Equipment operating on collection routes	$0.40	$0.40
Total variable costs per unit	$1.40	$1.70
Variable Cost	$350,000	$425,000
Total Cost	$470,000	$545,000
Surplus/deficit	$30,000	$(45,000)

The graph below represents the break even number of containers under the old landfill charge.