First though we will look at breakeven analysis which

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Unformatted text preview: etail in sections that follow. First, though, we will look at breakeven analysis, which lays the foundation for leverage concepts by demonstrating the effects of fixed costs on the firm’s operations. Breakeven Analysis breakeven analysis Indicates the level of operations necessary to cover all operating costs and the profitability associated with various levels of sales. operating breakeven point The level of sales necessary to cover all operating costs; the point at which EBIT $0. Breakeven analysis, sometimes called cost-volume-profit analysis, is used by the firm (1) to determine the level of operations necessary to cover all operating costs and (2) to evaluate the profitability associated with various levels of sales. The firm’s operating breakeven point is the level of sales necessary to cover all operating costs. At that point, earnings before interest and taxes equals $0.1 The first step in finding the operating breakeven point is to divide the cost of goods sold and operating expenses into f...
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