Breakeven analysis
Another tool to help make good decisions
What kinds?
capital expenditures
pricing
growth plans
Fixed costs
Variable costs
Semi-variable costs
Revenue = price x volume
COS = direct cost x volume
Fixed cost doesn’t change
Breakeven analysis
Contribution margin = price – cost per unit
Breakeven point = fixed cost / contribution
Operating leverage
Concepts
% change in EBIT / % change in sales
Examples: page 479
1 sales go up, profits up faster
1 sales go up, profits risk less
Total leverage = DOL x DFL
Another tool to help make good decisions
What kinds?
capital expenditures
pricing
growth plans
Fixed costs
Variable costs
Semi-variable costs
Revenue = price x volume
COS = direct cost x volume
Fixed cost doesn’t change
Breakeven analysis
Contribution margin = price – cost per unit
Breakeven point = fixed cost / contribution
Operating leverage
Concepts
% change in EBIT / % change in sales
Examples: page 479
1 sales go up, profits up faster
1 sales go up, profits risk less
Total leverage = DOL x DFL