The sales break-even point is defined as:
the level of sales that a firm must reach to cover total operating costs
Firms with high fixed operating costs:
tend to have low variable costs
Given fixed costs of $100,000, variable costs of $7.00 per unit, and a sales price per unit of $10.00, calculate the break-even point in units.
33,333
Given fixed costs of $200,000, variable costs of $6.00 per unit, and a sales price per unit of $7.00, calculate the break-even point in units.
200,000
Firms with relatively low fixed operating costs and high variable operating costs can best be described as:
having a low degree of operating leverage
If variable costs = $10.00 per unit; and the selling price = $13.00 per unit, and the break-even point in units = 100,000, calculate the fixed costs.
$300,000
Degree of operating leverage can best be defined as:
DOL = % change EBIT
% change in Sales
If sales in 2014 were $100,000 and in 2015 sales were $125,000;
If operating income in 2014 were $50,000 and in 2015 were $75,000;
If net income in 2014 were $10,000 and in 2015 were projected to be $15,000;
Calculate DOL using 2014 as your base:
2
Total variable costs are $15,000, sales $50,000, and fixed costs $15,000; calculate DOL.
1.75
Whenever fixed costs are greater than zero, DOL is:
greater than 1