Competitive Parity Budgeting Is a Budgeting Method

question 7

Multiple Choice

Competitive parity budgeting is a budgeting method:

• A)that allocates funds to promotion as a percentage of past or anticipated sales, in terms of either dollars or units sold.
• B)that matches the competitors' absolute level of spending or the proportion per point of market share.
• C)whereby the company determines its promotion objectives, outlines the tasks to accomplish these objectives, and determines the promotion cost of performing these tasks.
• D)that allocates funds to promotion only after all other budget items are covered.

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Definitions:

Fixed Expenses

Expenses that remain constant regardless of variations in the level of production or the volume of sales, like lease payments or wages.

Degree Of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to its sales volume, indicating the impact of fixed costs on earnings.

Variable Expenses

Expenses that vary directly with the amount of activity or production volume.

Fixed Expenses

Expenses that do not change with the level of production or sales, remaining constant regardless of business activity levels.