Company ABC has fixed costs of $320,000 and variable costs equal to 60% of sales. If its margin of safety is 20%, what is the companys operating profit?

Questions:

1. Breakeven analysis is an extremely useful tool. It looks at the incremental profit impact from changes in costs and volumes. What critical assumption is made to enable us to use this tool?
2. What is the primary concept underlying breakeven analysis and the key to incremental profitability analysis?