According to Moyer, McGuigan, and Rao (2018), operating leverage plays an important role in determining risk. To help determine and mitigate risk, it is important to understand the fundamentals of breakeven analysis.

For this project, consider Acme, Inc., which sells a product for $300 per unit. Its total dollar sales are $4 million, its total variable costs are $2 million, and its current fixed costs are $1 million.

Based on the above information, answer the following questions:

1. What is the current output (Q)?
2. What is the current variable (operating) costs per unit (V)?
3. What is the firms breakeven output (in units)? Provide a breakeven analysis chart which illustrates this.
4. What are some limitations of the breakeven analysis? How can these limitations affect financial decision making?
5. How does raising or lowering the unit price affect the breakeven point?
6. What are some variables that can affect the breakeven point?