| Author: | O'Brien, T. J. |
| Title: | Operating leverage in cost reduction capital budgeting proposals: A rigorous and practical approach. |
| Journal: | Engineering Economist
1989 : SUMMER, VOL. 34:4, p. 305-314 |
| Index terms: | GEARING COST REDUCTION CAPITAL BUDGETING |
| Language: | eng |
| Abstract: | A method is presented for integrating the operating leverage concept into cost reduction capital budgeting decisions. The method is rigourous, since it is derived from a market-risk, asset-pricing theory. At the same time, the model is practical, since the risk measure "drops out" of the derivation and therefore does not need to be defined or measured for application. The principle assumption in cost reduction decisions is that sales are not affected by the decision to change the production structure. Finally, cost reduction examples are presented. From a "base case" scenario three cost reduction decisions are examined. |
SCIMA