3 as might be expected an increase in cost fc or vc

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Unformatted text preview: to an increase in each of these variables is summarized in Table 12.3. As might be expected, an increase in cost (FC or VC) tends to increase the operating breakeven point, whereas an increase in the sale price per unit (P) decreases the operating breakeven point. 3. Because the firm is assumed to be a single-product firm, its operating breakeven point is found in terms of unit sales, Q. For multiproduct firms, the operating breakeven point is generally found in terms of dollar sales, S. This is done by substituting the contribution margin, which is 100% minus total variable operating costs as a percentage of total sales, denoted VC%, into the denominator of Equation 12.3. The result is Equation 12.3a: S 1 FC VC% (12.3a) This multiproduct-firm breakeven point assumes that the firm’s product mix remains the same at all levels of sales. CHAPTER 12 Leverage and Capital Structure 511 FIGURE 12.1 Sales Revenue Breakeven Analysis Graphical operating breakeven analysis 12,000 Costs/Revenues ($) EB IT Total Operating Cost 10,000 8,000 6,000 Operating Breakeven Point Loss 4,000 Fixed Operating Cost 2,000 0 500 1,000 1,500 2,000 2,500 3,000 Sales (units) EXAMPLE Assume that Cheryl’s Posters wishes to evaluate the impact of several options: (1) increasing fixed operating costs to $3,000, (...
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