How Much Does Each Additional Sales Dollar Contribute Toward Profit

question 112

Multiple Choice

How much does each additional sales dollar contribute toward profit for a firm with $5 million break-even level of revenues and $1.5 million in fixed costs including depreciation?

• A) $0.30
• B) $0.33
• C) $0.50
• D) $0.67

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Definitions:

Fixed Assets

Long-term tangible assets that are used in the operations of a business and are not expected to be converted to cash in the near-term.

Initial Cost

The initial expenditure involved in acquiring an asset or starting a project, before any operational or maintenance costs.

Net Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term liquidity and operational efficiency of the business.

Capital Cost Allowance (CCA)

The deduction in the Canadian tax system for depreciation of tangible property that a business uses to generate income.