1 into the algebraic representation shown in table

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Unformatted text preview: n recast the operating portion of the firm’s income statement given in Table 12.1 into the algebraic representation shown in Table 12.2. P Q FC VC sale price per unit sales quantity in units fixed operating cost per period variable operating cost per unit Rewriting the algebraic calculations in Table 12.2 as a formula for earnings before interest and taxes yields Equation 12.1: EBIT (P Q) FC (VC Q) (12.1) Simplifying Equation 12.1 yields EBIT TABLE 12.2 Q (P VC) FC (12.2) Operating Leverage, Costs, and Breakeven Analysis Item Sales revenue Operating leverage Less: Fixed operating costs Less: Variable operating costs Earnings before interest and taxes Algebraic representation (P Q) FC (VC Q) EBIT 1. Quite often, the breakeven point is calculated so that it represents the point at which all operating and financial costs are covered. Our concern in this chapter is not with this overall breakeven point. 2. Some costs, commonly called semifixed or semivariable, are partly fixed and partly variable. An example is sales commissions that are fixed for a certain volume of...
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