Assume that Cheryl’s Posters wishes to evaluate the impact of several options:

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 appropriate data into Equation 12.3 yields the following results:

(1) Operating breakeven point= 

(2) Operating breakeven point = 

(3) Operating breakeven point =

(4) Operating breakeven point =

 

 

Comparing the resulting operating breakeven points to the initial value of 500 units, we can see that the cost increases (actions 1 and 3) raise the breakeven point, whereas the revenue increase (action 2) lowers the breakeven point. The combined effect of increasing all three variables (action 4) also results in an increased operating breakeven point.

 

Equation 12.3