Abstract
- The objective of this study is to define a process by which we may determine the operating breakeven points and the magnitude of sales that maximizes operating profitability. A new paradigm assumes a straight-line total revenue function and a curvilinear total cost function. Total costs are modeled as a quadratic function of sales relative to the breakeven point estimate. Analysis of a small set of industrial companies suggests that sample firms perform below the optimal level of sales. Moreover, data indicates that implied capacity utilization is inversely related to operating profitability.