A Cost Function with a Lower Slope Coefficient Than a Year

question 1

Multiple Choice

A cost function with a lower slope coefficient than a year ago could indicate that:

• A)total variable costs have decreased
• B)new cost-cutting initiatives are beneficial
• C)production has decreased
• D)rental costs have decreased

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Definitions:

Direct Material

Raw materials that can be physically and directly associated with the finished product during the manufacturing process.

Indirect Material

Materials used in the production process but not directly traceable to a finished product, such as lubricants for machinery.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the proportion of fixed versus variable costs a company has.

Safety Margin

The difference between the actual sales and the break-even point; it measures the amount by which sales can drop before a business incurs a loss.