Operating decisions involve choices about how a company will produce and sell products to earn revenues and make a profit.
(a). Sales revenue depends on sales volume and price per unit, which are indirectly related. An increase in price usually results in a decrease in volume.
(b). The prices a company can charge for its products depend on what customers are willing to pay based on the value of the products to them and the prices charged by competitors.
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(c). If a market is highly competitive and companies in the market produce very similar products, the companies usually will compete on the basis of price. They will keep their prices low to attract customers and will depend on high sales volume to earn a profit.
(d). If a company can distinguish its products from competitorsĂ˘â‚¬â„˘ products by special features or qualities, it can charge a higher price and earn more per unit from customers who are willing to pay for these features or qualities.
(e). Asset turnover measures the volume of sales (in dollars) relative to a companyĂ˘â‚¬â„˘s investment in assets. Companies that compete using low prices require high asset turnover to earn a high profit and return on assets.
(f). Profit margin measures the amount of income a company can earn on its sales. Companies that compete using special product features use high profit margin to earn a high profit and return on assets.