Define the Two Tests That Will Help You Make Reasonable

question 71

Essay

Define the two tests that will help you make reasonable inferences from the data gathered for your business report.
First is the test of experience. In applying this test, the writers use the underlying theme in all scientific methods-reason. They ponder on each interpretation they make, asking themselves, "Does this appear reasonable in light of all we know or have experienced?"
Second is the negative test, which is a critique of the writers' own conclusions. Here, they consider what a skeptic or "devil's advocate" might say about their interpretations. By considering the opposing viewpoint, they make their interpretations more reliable.

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Definitions:

Contribution Format Income Statement

An income statement that separates fixed and variable costs to highlight the contribution margin.

Operating Leverage

A measure of how sensitive a company's operating income is to a change in its revenues, indicating the proportion of fixed costs in the company's cost structure.

Contribution Format Income Statement

An income statement format that separates fixed costs from variable costs, thus showing the contribution margin.

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to its sales, indicating how revenue growth translates into growth in operating income.