A Business Owner Notes That for Every Extra Hour His

question 411

Multiple Choice

A business owner notes that for every extra hour his store is open, his total sales increase by a fixed
Amount. His most useful predictive model is probably...

• A) exponential
• B) quadratic
• C) linear
• D) logarithmic
• E) power

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Definitions:

Net Income

The total profit of a company after all expenses, including taxes and operating costs, have been subtracted from total revenues.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the proportion of fixed versus variable costs a company has.

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's earnings before interest and taxes (EBIT) to a percentage change in sales, indicating the impact of fixed costs on profits.

High-low Method

The high-low method is an accounting technique used to estimate the variable and fixed costs of a business based on the highest and lowest levels of activity.