Making Assumptions Based on Prior Experiences and Judgements Which May

question 21

Multiple Choice

Making assumptions based on prior experiences and judgements which may turn out to be inaccurate or false is an example of falling into the:

• A) anchoring trap.
• B) pattern recognition trap.
• C) estimating and forecasting traps.
• D) framing trap.
• E) confirmation bias trap.

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Definitions:

Operating Leverage

A measure of how revenue growth translates into growth in operating income, influenced by the proportion of fixed to variable costs.

Fixed Costs

Fixed Costs are business expenses that remain constant regardless of the level of production or sales activity, such as rent, salaries, and insurance.

Profit-volume Chart

A Profit-Volume Chart is a graphical representation that shows the relationship between a firm's profits and its volume of sales, illustrating the impact of different sales levels on profits.

Total Sales Revenues

The total income received by a company from its sales of goods or services, before any expenses are subtracted.