What Does the 80-20 Rule Mean

question 19

Multiple Choice

What does the 80-20 rule mean?

• A)80% of the buying comes from 20% of the vendors.
• B)80% of sales come from 20% markdowns.
• C)80% of the customers pay with 20% of their income.
• D)80% of the sales or profits come from 20% of the customers.
• E)80% of the merchandise is sold at 20% off.

Calculate and interpret the break-even point in units and in sales dollars.

Estimate net operating income based on given sales data and fixed and variable expense structures.

Understand the effect of changes in selling price, variable costs, fixed costs, and sales volume on net operating income.

Determine and evaluate the margin of safety in both percentage and dollar terms.

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Definitions:

Risk-Free Rate

The earnings from an investment that carries no possibility of losing money, usually linked to government-issued bonds.

Weighted Average Cost

A method used to calculate the average cost of a group of assets, taking into account the varying weights of each asset.

Systematic Risk

The type of risk inherent to the entire market or market segment, which cannot be mitigated or eliminated through diversification.

Cost of Equity

The return a company theoretically pays to its equity investors to compensate them for the risk they undertake by investing in the company's stock.