Question 12.1: Using Break-Even Numbers SITUATION: You have just finished c...
Using Break-Even Numbers
SITUATION: You have just finished calculating the pretax operating cash flow and accounting operating profit break-even numbers for the in-home computer-support business. These numbers are as follows:
• Pretax operating cash flow break-even point: 720 house calls per year (60 per month)
• Accounting operating profit break-even point: 960 house calls per year (80 per month)
You have also just heard that the national company that provides these services is going to move to the town in which you are located. This has caused you to reduce your estimate of the annual number of house calls you can expect for your business in half, from 1,440 (120 per month) to 720. How will this affect your decision to enter this business?
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