COMM 2020 Lecture Notes - Lecture 7: Operating Leverage, Earnings Before Interest And Taxes, Fixed Cost
19 Apr 2016
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Make decisions based on our analysis of costs. Sales variable cost = contribution margin fixed cost = net income. Break even (be)/cost volume profit (cvp: sales costs = operating income, sales variable costs fixed costs = operating income, (price * quantity) (variable cost/unit * quantity) fixed cost = operating. Income: (p vc) * q fc = op inc, (p vc) * q = op inc + fc, q = (fc)/(p vc) Another be/cvp: sales vc fc = op inc, (p * q) (vc * q) fc = op inc, (p vc) * q fc = op inc. Q is sales/p: (p vc) * (sales/p) fc = op inc, ((p vc)/p * sales = fc ((p vc)/p) is contribution method, sales = ((fc)/((p vc)/p)) Problem 9-28: outside = inside machine x, q = 135k + 0. 65q, 1. 35q = 135k, q=100k units, so, if we"re going to make more than 100k units, we should choose machine.
