Diversification Allows You to Reduce Risk

question 34

True/False

Diversification allows you to reduce risk.

Understand the calculation and significance of the margin of safety percentage.

Recognize the effect of sales mix shifts on the break-even point.

Understand the special case relationship between the break-even point formula and the formula to attain a target profit.

Understand how to compute budgeted changes in inventory levels.

---

Definitions:

Out-of-Pocket Costs

Out-of-pocket costs are expenses that individuals directly pay from their funds, not covered by third-party payers like insurance.

Incremental Revenue

Additional revenue generated from a specific action or decision, beyond what would have been generated otherwise.

Special Order

A one-time order that is not considered part of the company's normal ongoing operations.

Incremental Costs

These are the additional costs incurred when increasing the production volume or taking on a new project.