Question:
Linear Profit Models
This week, you began your examination of the tools that managers use to make decisions, develop external reports, and control organizational activities. Specifically, you focused on linear profit modeling as a means for calculating break-even point and target profits. Using this week's Learning Resources and other resources that you might choose to investigate, answer the following questions for this week's class discussion:
• Refer to the "Whopper to Go" article in The Economist. How can Burger King's profitability problems be framed in a linear profit model? (Note:Numbers are not required to frame this problem mathematically.)
• How do linear profit models relate to GAAP-basis income statements?
• How well do linear profit models fit the real world?
• Why might linear cost models be inappropriate? Why might they not be useful?
• Why are linear profit models used in financial decision making?
• What are the limitations of using linear profit models in financial decision making?