Must-Know Terms

Question 1

Capacity

Answer 1

Total # of units capable of being produced by a facility in a given time, usually 1 year

Question 2

Utilization

Answer 2

Measure of % of the capacity being used

Question 3

Amortization

Answer 3

An allocation of cost of an intangible asset over its estimated useful life

Question 4

Contribution Margin

Answer 4

Difference between price per unit and variable cost per unit; used to determine gross profitability per unit

Question 5

Conversion Ratio

Answer 5

Percentage of customers who purchase or adopt a product or service out of the total target population

Question 6

Cost-plus

Answer 6

A pricing method in which selling price is established by adding a markup to total variable costs. Markup will contribute to meeting fixed costs plus generating some level of profit.

Question 7

Depreciation

Answer 7

A method of allocating cost of a tangible asset over its useful life. Businesses depreciate long-term assets for both accounting and tax purposes

Question 8

Margin

Answer 8

Ratio of profitability calculated as income divided by revenues or profits divided by sales