CHAPTER 12 Leverage and Capital Structure 511
Sales
Revenue
Total
Operating
Cost
Operating
Breakeven
Point
EBIT
Fixed
Operating
Cost
0 500 1,000 1,500 2,000 2,500 3,000
Loss
12,000
10,000
8,000
6,000
4,000
2,000
Costs/Revenues ($)
Sales (units)
FIGURE 12.1
Breakeven Analysis
Graphical operating
breakeven analysis
TABLE 12.3 Sensitivity of Operating
Breakeven Point to Increases
in Key Breakeven Variables
Effect on operating
Increase in variable breakeven point
Fixed operating cost (FC) Increase
Sale price per unit (P) Decrease
Variable operating cost per unit (VC) Increase
Note:Decreases in each of the variables shown would have the oppo-
site effect from their effect on 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
$12.50, (3) increasing the variable operating cost per unit to $7.50, and (4)
simultaneously implementing all three of these changes. Substituting the appro-
priate data into Equation 12.3 yields the following results:
(1) Operating breakeven point600 units
(2) Operating breakeven point 3331 ⁄ 3 units
$2,500
$12.50$5
$3,000
$10$5