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Operating leverage, margin of safety, and cost behavior

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What is the accounting concept to explain how a 3% decline in sales could cause a 21% decline in profits. Also, discuss the effect of declining sales on an organization's margin of safety.

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Solution Summary

Response is 302 words and a diagram so you can "see" the concepts. Example given in addition to problem posed. Discussion is in everyday language suitable for novice.

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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