BU121 Lecture Notes - Lecture 10: Operating Leverage, Fixed Cost, Variable Cost
Document Summary
Breakeven drivers: (cid:862)ca(cid:374) i sell that (cid:373)u(cid:272)h(cid:863) calculate how many to sell to break even, now can you sell that much be careful and look at market if your forecast is realistic. Change approach so that whatever you do lock into, is at a more reasonable level. If (cid:455)ou i(cid:374)(cid:272)ur those fi(cid:454)ed (cid:272)osts the(cid:374) (cid:455)ou"re set. Most i(cid:373)porta(cid:374)t i(cid:374)flue(cid:374)(cid:272)e/dri(cid:448)er o(cid:374) a (cid:448)e(cid:374)ture"s (cid:271)reake(cid:448)e(cid:374) is its (cid:448)aria(cid:271)le (cid:272)ost re(cid:448)e(cid:374)ue ratio (vcrr: what is left over once this variable cost is covered is its contribution margin. E. g for example lets say that in year 2 due to volume discounts the company can lower production costs to %60 per unit (60% of revenue per unit) vs . Survival revenue (sr) (revenue neede to breakeven) Leverage: often a company has to tradeoff accepting higher fixed costs to get lower vcrr. Magnify returns: having more fixed, in order to magnify returns. E. g. buying hot and highly automated piece of machinery.
