Use the following statements to answer this question:
I.The source of volatility in operating income is caused by fixed costs.
II.Operating leverage does not necessarily increase with increases in the volatility of net income.
A)I and II are correct.
B)I and II are incorrect.
C)I is correct and II is incorrect.
D)I is incorrect and II is correct.

Question

Quizplus · Accepted Answer

I is correct because fixed costs do not change with the level of production or sales, leading to higher volatility in operating income as sales fluctuate. II is correct because operating leverage, which measures the proportion of fixed costs in a company's cost structure, affects the volatility of operating income, not directly the volatility of net income, which can also be influenced by factors such as financial leverage and taxes.

Use the Following Statements to Answer This Question