Choosing the Appropriate Level of Capacity

question 163

Multiple Choice

Choosing the appropriate level of capacity:

• A)may lead to idle capacity if underestimated.
• B)is a key strategic decision.
• C)may lead to loss of sales if overestimated.
• D)All of these answers are correct.

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Definitions:

Operating Leverage

A measure of how sensitive a company's operating income is to changes in sales volume, indicating the degree of fixed versus variable costs.

Percentage Change

A mathematical calculation that depicts the degree of change over time, usually expressed as a percentage.

Break-Even

The point at which total costs and total revenue are equal, meaning there is no net loss or gain, and one has "broken even."

Monthly

Pertaining to or calculated for a period of one month.