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 $3,000, (2) increasing the sale price per unit to CHAPTER 11 Leverage and Capital Structure 425 FIGURE 11.1
Revenue Breakeven Analysis
breakeven analysis 12,000 Costs/Revenues ($) EB
Point Loss 4,000 Fixed
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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