1. Explain how a linear breakeven chart is constructed when a firm's selling price, variable costs per unit, and fixed costs are known.

2. What are some of the limitations of breakeven analysis? How can these limitations affect actual financial decision making?

3. Assuming that all other factors remain unchanged, determine how a firm's break- even point is affected by each of the following developments:

a. The firm finds it necessary to reduce the price per unit because of competitive conditions in the market.

b. The firm's direct labor costs increase as a result of a new labor contract.

c. The Occupational Safety and Health Administration requires the firm to install new ventilating equipment in its plant. (Assume that this action has no effect on worker productivity.)