Breakeven Point Formula

Breakeven Point Formula - operating income This...

This preview shows pages 1–3. Sign up to view the full content.

Breakeven Point  Formula:  Total FC Unit Contribution Margin BATNA:  Best Alternative to a Negotiated  Agreement ZOPA:  Zone of Potential Agreement Reservation Price:  Worst case scenario  you will accept before impasse.  Be FIRM   and SPECIFIC ! Reservation price changes for only  One reason         new information adjusts BATNA. Ultimate Goal:  To have the other  party give you what  you  want for  their  reasons! With high  operating leverage small increase in sales  produces a  relatively larger increase in  operating income . Stop to Note:  This is the top area of  the income statement from sales to  EBIT.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Operating Leverage :  by using  fixed operating costs, a small  change in sales revenue  is  magnified into a larger change in
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: operating income . This “multiplier effect” is called the degree of operating leverage (DOL). If we have the data, we can use this formula: Example #1: DOL = 2 A 1% increase in sales will result in a 2% increase in operating income (EBIT) . Example #2: DOL = 4 A 1% increase in sales will result in a 4% increase in operating income (EBIT) . * Answer to Thought Question Q: What happens to his operating profit if he has DOL of 5 and he decides to “cut-back” from 20 to 19 patients per day? A: [(19-20)/20]=-0.05 or 5% decrease in revenue 5% decrease in revenue x DOL of 5 = -0.25 25% Decline in Operating Profit...
View Full Document

Page1 / 3

Breakeven Point Formula - operating income This...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online