One of the First Steps to Take When Using CVP

question 144

Multiple Choice

One of the first steps to take when using CVP analysis to help make decisions is:

• A)finding out where the total costs line intersects with the total revenues line on a graph.
• B)identifying which costs are variable and which costs are fixed.
• C)calculation of the degree of operating leverage for the company.
• D)estimating how many products will have to be sold to make a decent profit.

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Definitions:

Weighted Average Cost Of Capital

The average rate of return a company is expected to pay its security holders, weighted by the proportion of each finance source in the company's structure.

Economic Value Added

A measure of a company's financial performance calculated by subtracting its cost of capital from its operating profit.

Operating Income

Earnings before interest and taxes (EBIT), representing the profit from core business operations excluding non-operating income and expenses.

Economic Value Added

A measure of a company's financial performance based on the residual wealth calculated by deducting cost of capital from its operating profit.