To be profitable, a firm has recover its costs. These costs include both its fixed and its variable costs. One way that a firm evaluates at what stage it would recover the invested costs is to calculate how many units or how much in dollar sales is necessary for the firm to earn a profit.

Consider the case of Petrox Oil Co$.$:

Petrox Oil Co$.$ is considering a project that will have fixed costs of $$15,000,000.$ The product will be sold for $$41\mathrm{.}50$ per unit, and will incur a variable cost of $$11\mathrm{.}25$ per unit.

Given Petrox's cost structure, it will have to sel units to break even on this project $(Q_{BE}).$

Petrox Oil Co$.\text{'}$s marketing sales director doesn't think that the market for the firm's doods is big enough to sell enough units to make the company's target operating profit of $$20,000,000.$ In fact, she believes that the firm will be able to sell only about $175,000$ units. However, she also thinks the demand for Petrox Oil Co$.\text{'}$s product is relatively inelastic, so the firm can increase the sale price. Assuming that the firm can sell $175,000$ units, what price must it set to meet the CFO's EBIT goal of $$20,000,000?$

$$221\mathrm{.}81$

$$264\mathrm{.}06$

$$211\mathrm{.}25$

$$242\mathrm{.}94$

What affects the firm's operating break$-$even point?

Several factors affect a firm's operating break$-$even point. Based on the scenarios described in the following table, indicate whether these factors would increase, decrease, or leave unchanged a firm's break$-$even quantity$-$assuming that only the listed factor changes and all other relevant factors remain constant.

$\backslash$table$[[$The firm depreciates its fixed assets more quickly over a shorter life.,Increase Decrease No Change$],[$The product's sales price increases.,$],[$The amount of debt increases, causing the firm's total interest expense to increase.,$]]$

When other things are held constant, the higher a firm's operating leverage, the will be its business risk.