If a Firm Doubled Its Level of Fixed Costs but Maintained

question 40

Multiple Choice

If a firm doubled its level of fixed costs but maintained its operating leverage,then one explanation may be that:

• A) depreciation expense increased to offset the increase.
• B) sales revenue also doubled and the proportion of variable costs did not change.
• C) sales revenues declined and the proportion of variable costs doubled.
• D) pretax profits decreased.

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Definitions:

Buffer

A protective barrier or amount of leeway that allows for the absorption of shocks, errors, or unforeseen circumstances in various contexts.

Identifies

The action of recognizing and naming someone or something as being a particular person or thing.

Third Person

A point of view in writing or storytelling where the narrator refers to all characters with third-person pronouns such as "he," "she," "it," or "they."

Second Person

A narrative perspective using "you," which directly addresses the reader or audience in a piece of writing or speech.