To be profitable, a firm has recover its costs. These costs include both its fixed and its variable costs. One way thata 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 Dynamic Defenses Corporation: Dynamic Defenses Corporation is considering a project that will have fixed costs of $12,000,000. The product will be sold for $41.50 per unit, and will incur a variable cost of $10.75 per unit. Given Dynamic Defenses's cost structure, it will have to sell units to break even on this project (Qe) Dynamic Defenses Corporation's marketing sales director doesn't think that the market for the firm's goods is big enough to sel enough units to make the company's target operating profit of $15,000,000. In fact, she believes that the firm will be able to sell only about 150,000 units. However, she also thinks the demand for Dynamic Defenses Corporation's product is relatively inelastic, so the firm can increase the sale price. Assuming that the firm can sell 150,000 units, what price must it set to meet the CFO'S EBIT goal of $15,000,0007 O $219.36 $200.29 O $238.44 Q 190.75 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 that only the listed factor changes and all other relevant factors remain constant Increase, decrease, or leave unchanged a firm's break-even quantity-assuming Increase Decrease No Change The firm depreciates its fixed assets more shorter life quickly over a 8 2 3 6 bynamic Delenses Corporation's marketing sales director doesn't think that the market for the firm's goods is big enough to sel enough units to make the company's target operating profit of $15,000,000. In fact, she believes that the firm will be able to sell only about 150,000 units. However, she also thinks the demand for Dynamic Defenses Corporation's product is relatively inelastic, so the firm can increase the sale price. Assuming that the firm can sel 150,000 units, what price must it set to meet the CFO's EBIT goal of $15,000,000 $219.36 $200.29 $238.44 O $190.75 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. Increase Decrease No Change The firm depreciates its foxed assets more quickly over a shorter life. The product's sales price increases. The amount of debt increases, cousing the firm's total nterest expense to increase. 800 When a large percentage of a firm's costs are fixed, the firm is said to have a degree of operating leverage. 8. 6
