Customer Profitability Analysis

question 95

Multiple Choice

Customer profitability analysis:

• A)Always shows that the company with the highest total sales generates the highest net customer profit.
• B)Always shows that the company with the lowest total sales generates the lowest net customer profit.
• C)Produces the same results as a Pareto analysis.
• D)Helps identify actions to improve customer profitability.

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Definitions:

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the degree to which a firm can increase its profits by increasing sales.

Fixed Operating Costs

Expenses that do not change with the volume of production, such as salaries and rent.

Variable Costs

Expenses that vary directly with the level of production or sales volume, such as raw materials and direct labor costs.

Breakeven Volume

The quantity of goods or services that must be sold to cover fixed and variable costs, resulting in no profit or loss.