An Auto Manufacturer Using the Portfolio Model for Strategic Sourcing

question 3

True/False

An auto manufacturer using the portfolio model for strategic sourcing would classify items like office supplies into the leverage items quadrant.

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Definitions:

Operating Leverage

A measure of how revenue growth translates into growth in operating income, reflecting a company’s fixed versus variable costs structure.

Contribution Margin Ratio

The proportion of sales revenue that remains after variable costs are subtracted, expressed as a percentage, indicating the contribution towards covering fixed costs and generating profit.

Fixed Expenses

Costs that do not change in total despite changes in the level of business activity or production volume, such as rent or salaries.

Target Net Profit

A financial objective set by a business indicating the desired bottom-line income after all expenses, interest, and taxes have been deducted from total revenues.