The effects of increases or decreases in these

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Unformatted text preview: ing cost per unit (VC). The effects of increases or decreases in these variables can be readily seen by referring to Equation 11.3. The sensitivity of the breakeven sales volume (Q) to an increase in each of these variables is summarized in Table 11.3. 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. EXAMPLE Assume that Cheryl’s Posters wishes to evaluate the impact of several options: (1) increasing fixed operating costs to $3,000, (2) increasing the sale price per unit to CHAPTER 11 Leverage and Capital Structure 425 FIGURE 11.1 Sales Revenue Breakeven Analysis Graphical operating breakeven analysis 12,000 Costs/Revenues ($) 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) $12.50, (3) increasing the variable operating cost per unit to $7...
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