Which of the Following Best Illustrates Diversification

question 81

Multiple Choice

Which of the following best illustrates diversification?

• A)A company that produces many different products decides to produce fewer.
• B)After selling stock, corporate management spends funds on projects with greater risks than shareholders had anticipated.
• C)Instead of holding only the stocks of companies engaged in the banking business, a person decides to hold stock in a number of different companies producing different goods and services.
• D)A person decides to purchase only stocks that have paid high dividends in the past.

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Definitions:

Variable Expenses

Expenses directly linked to the volume of output, adjusting in accordance with business activity levels.

Fixed Expenses

Recurring costs that do not vary with the level of production or sales, such as rent, salaries, and insurance.

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to a change in its sales volume, signifying the impact of fixed versus variable costs.

Variable Expenses

Costs that vary directly with the level of production or sales volume, such as raw materials, direct labor, and sales commissions.