1 the graphical approach figure 121 presents in

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Unformatted text preview: units, along with the other values given, into Equation 12.1. The Graphical Approach Figure 12.1 presents in graphical form the breakeven analysis of the data in the preceding example. The firm’s operating breakeven point is the point at which its total operating cost—the sum of its fixed and variable operating costs—equals sales revenue. At this point, EBIT equals $0. The figure shows that for sales below 500 units, total operating cost exceeds sales revenue, and EBIT is less than $0 (a loss). For sales above the breakeven point of 500 units, sales revenue exceeds total operating cost, and EBIT is greater than $0. Changing Costs and the Operating Breakeven Point A firm’s operating breakeven point is sensitive to a number of variables: fixed operating cost (FC), the sale price per unit (P), and the variable operating cost per unit (VC). The effects of increases or decreases in these variables can be readily seen by referring to Equation 12.3. The sensitivity of the breakeven sales volume (Q)...
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This document was uploaded on 01/19/2014.

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