Problem
Jagger Enterprises is evaluating a new product whose sales price would be set at 2.7 times the variable cost (VC) per unit; the VC/unit is estimated to be $2.50. The fixed cost of the project is $12,000.
I. What sales volume would be required in order to break even, i.e., to have an EBIT of zero for the business?
II. What will be the break-even sales volume if the fixed cost is $15,000?
III. What is operating leverage? What does the example above indicate about the operating leverage's impact on the business risk of a company?