The following information is for Companies M and N for the most recent year: $$\begin{array} { l l l }
& \text { Company M } & \text { Company N } \
\text { Sales } & \$ 500,000 & \$ 500,000 \
\text { Variable costs } & \$ 300,000 & \$ 200,000 \
\text { Fixed costs } & \$ 50,000 & \$ 150,000
\end{array}$$ Based on this information,which of the following statements is incorrect?
A) N's magnitude of operating leverage is lower than M's.
B) N would suffer more than M from an equal drop in sales revenue.
C) N's cost structure carries greater risk and greater potential for profit.
D) If N's sales increased by 20%, its net income would increase by 40%.

Question

The following information is for Companies M and N for the most recent year: $$\begin{array} { l l l } 
& \text { Company M } & \text { Company N } \
\text { Sales } & \$ 500,000 & \$ 500,000 \
\text { Variable costs } & \$ 300,000 & \$ 200,000 \
\text { Fixed costs } & \$ 50,000 & \$ 150,000
\end{array}$$ Based on this information,which of the following statements is incorrect?
A) N's magnitude of operating leverage is lower than M's.
B) N would suffer more than M from an equal drop in sales revenue.
C) N's cost structure carries greater risk and greater potential for profit.
D) If N's sales increased by 20%, its net income would increase by 40%.

Quizplus · Accepted Answer

The Answer of The following information is for Companies M and N for the most recent year: $$\begin{array} { l l l } 
& \text { Company M } & \text { Company N } \
\text { Sales } & \$ 500,000 & \$ 500,000 \
\text { Variable costs } & \$ 300,000 & \$ 200,000 \
\text { Fixed costs } & \$ 50,000 & \$ 150,000
\end{array}$$ Based on this information,which of the following statements is incorrect?
A) N's magnitude of operating leverage is lower than M's.
B) N would suffer more than M from an equal drop in sales revenue.
C) N's cost structure carries greater risk and greater potential for profit.
D) If N's sales increased by 20%, its net income would increase by 40%.

The Following Information Is for Companies M and N for the Most