If Two Companies Have the Same Total Sales and Total

question 119

True/False

If two companies have the same total sales and total expenses and make the same product, the volatility of net income with changes in sales will tend to be greater in the company with a higher proportion of fixed expenses in its cost structure.

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Definitions:

Initial Recognition

The process of recording an asset or liability in the financial statements at the time it is incurred or acquired.

Measurement Basis

The method or approach used in accounting to determine the value at which assets, liabilities, income, and expenses are recorded in the financial statements.

Cost

The value of money that has been used up to produce something or deliver a service, and hence is not available for use anymore.

Revaluation

An adjustment of the value of an asset to reflect its current market value rather than its cost value.