Would each of the following increase, decrease, or have an indeterminant effect on a firm's breakeven point(unit sales)?
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1) Would each of the following increase, decrease, or have an indeterminant effect on a firm's breakeven point(unit sales)?
a. An increase in the sales price with no changes in unit cost?
b. An increase in fixed costs accompanied by a decrease in variable cost?
c. A new firm deices to use MACRS depreciation for both book and tax purposes rather than the straight-line depreciation method.
2)Why do public utilities generally use different capital structures than drug companies?
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Solution Summary
A sentence or two provides the rationale for each.
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1 BEP = Fixed cost / (Selling price - Variable cost)
a) If the selling price increases, the contribution margin per unit will increase and hence the BEP will decrease.
b) Increase in fixec cost will increase the BEP. The decrease in variable cost will increase the contribution margin per unit and hence BEP will decrease. ...
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