Our concern in this chapter is not with this overall

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Unformatted text preview: l 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 sales and then increase to higher levels for higher volumes. For convenience and clarity, we assume that all costs can be classified as either fixed or variable. 424 PART 4 Long-Term Financial Decisions Simplifying Equation 11.1 yields EBIT Q (P VC) FC (11.2) As noted above, the operating breakeven point is the level of sales at which all fixed and variable operating costs are covered—the level at which EBIT equals $0. Setting EBIT equal to $0 and solving Equation 11.2 for Q yield Q P FC VC (11.3) Q is the firm’s operating breakeven point. EXAMPLE Assume that Cheryl’s Posters, a small poster retailer, has fixed operating costs of $2,500, its sale price per unit (poster) is $10, and its variable operating cost per unit is $5. Applyin...
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