Major decisions with regard to both operating cost

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Unformatted text preview: re consistent with the firm’s goal of maximizing its stock price should be implemented. REVIEW OF LEARNING GOALS Discuss the role of breakeven analysis, the operating breakeven point, and the effect of changing costs on it. Breakeven analysis measures the level of sales necessary to cover total operating costs. The operating breakeven point may be calculated algebraically, by dividing fixed operating costs by the difference between the sale price per unit and variable operating cost per unit, or it may be determined graphically. The operating breakeven point increases with increased fixed and variable operating costs and decreases with an increase in sale price, and vice versa. LG1 Understand operating, financial, and total leverage and the relationships among them. Operating leverage is the use of fixed operating costs by the firm to magnify the effects of changes in sales on EBIT. The higher the fixed operating costs, the greater the operating leverage. Financial leverage is the use of fixed financial costs by the firm to magnify the effects of changes in EBIT on EPS. The hi...
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This document was uploaded on 01/19/2014.

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