Companies A and B are in the same industry and are identical except for cost structure.At a volume of 50,000 units,the companies have equal net incomes.At 60,000 units,Company A's net income would be substantially higher than B's.Based on this information,
A) Company A's cost structure has more variable costs than B's.
B) Company A's cost structure has higher fixed costs than B's.
C) Company B's cost structure has higher fixed costs than A's.
D) At a volume of 50,000 units, Company A's magnitude of operating leverage was lower than B's.

Question

Quizplus · Accepted Answer

Company A's net income increasing more than Company B's at a higher volume indicates that Company A has higher fixed costs and lower variable costs. This is because fixed costs are spread over more units, reducing the cost per unit and increasing profitability as sales volume increases.

Companies a and B Are in the Same Industry and Are