Explain the Difference Between Theoretical Capacity and Practical Capacity When

question 97

Essay

Explain the difference between theoretical capacity and practical capacity when estimating the denominator volume. Discuss how the choice of capacity affects the overhead rate.

Comprehend how prices in a market economy reflect supply and demand dynamics.

Calculate and compare productivity across different countries.

Describe the benefits of international trade.

Recognize reasons for government intervention in markets.

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Definitions:

Contribution Margin

The amount remaining from sales revenue after variable costs have been deducted, indicating how much contributes to covering fixed costs and generating profit.

Variable Expense Ratio

A financial metric that measures variable costs as a percentage of sales, reflecting how those costs fluctuate with production output.

Operating Leverage

A measure of how sensitive a company's operating income is to a change in sales volume, indicating the level of fixed costs in the business structure.

Sales Commissions

Payments made to sales personnel based on sales volume or value, serving as an incentive for increased sales performance.