Breakeven Point Formula

Breakeven Point Formula - operating income . This...

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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.
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Operating Leverage :  by using  fixed operating costs, a small  change in sales revenue  is  magnified into a larger change in 
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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...
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Breakeven Point Formula - operating income . This...

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