Question

SO CIL PICCOLO DE Blue Mouse Manufacturers is considering a project that will have fixed costs of $10,000,000. The product will be sold for $41.50 per unit, and will incur a variable cost of $12.80 per unit. Given Blue Mouse's cost structure, it will have to sell 348,432 units to break even on this project (QBE). Blue Mouse's marketing and sales director doesn't think that the firm's market is big enough for the firm to break even. In fact, she believes that the firm will be able to sell only about 150,000 units. However, she also thinks that the demand for Blue Mouse's product is relatively inelastic (so the firm can increase the sales price without significantly decreasing the volume of product sold). Assuming that the firm can sell 150,000 units, what price must it set to break even? $95.36 per unit $75.50 per unit $79.47 per unit $87.42 per unit O 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 fixed assets more quickly over a shorter life. The variable cost per unit decreases. The amount of debt increases, causing the firm's total interest expense to increase o ОО o When a large percentage of a firm's costs are fixed, the firm is said to have a high high degree of operating leverage. low

Answer 1

What affects the firm operating break even points

1. As depreciation is a fixed cost deprecating an asset quickly lead to increase in fixed cost for the year this will increase the break even quantity, so Increase
2. Variable cost per unit is decreased will decrease the break even quantity, so Decrease
3. Increase in debt means increase in interest payment and irrespective of sales a company needs to pay interest on loan. Increase in interest will increase the break even quantity. So Increase

When a large percentage of firms coat are fixed the firm is said to have high operating leverage as companies with high fixed cost needs to recover a large amount of money each month.