What Measures the Sensitivity of Profit Changes to Changes in Sales

question 48

Multiple Choice

What measures the sensitivity of profit changes to changes in sales volume?

• A) profitability ratio
• B) variable cost ratio
• C) contribution margin ratio
• D) degree of operating leverage

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Definitions:

Pricing Objective

The goals a company wants to achieve through its pricing strategy, such as maximizing profit, increasing market share, or driving competition.

Break-even Chart

A graphical representation that shows at what point a business, product, or project will become profitable, by plotting costs against revenues.

Variable Costs

Costs associated with production that change in proportion to the amount of goods or services produced.

Fixed Costs

Expenses that do not vary with production volume or service levels, such as rent, salaries, and insurance premiums.