When Prices Are Increasing at a Rate of 6 Percent,the

question 2

Multiple Choice

When prices are increasing at a rate of 6 percent,the cost of products would double in about how many years?

• A)7.2 years
• B)10 years
• C)6 years
• D)12 years
• E)18 years

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Definitions:

Break-Even Point

The level of production or sales at which total revenues equal total expenses, resulting in no net loss or gain.

Operating Leverage

The degree to which a company uses fixed operating costs, with all else being equal, the higher the operating leverage, the more sensitive net operating income is to a given percentage change in sales.

Cost-Volume-Profit Graph

A graphical representation that shows the relationship between the total cost, total revenue, and level of output or volume, to analyze the profitability at different levels of operation.

Contribution Margin

The amount remaining from sales revenue after variable expenses are deducted, showing the revenue available to cover fixed expenses and provide profit.