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

question 69

Multiple Choice

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%.

---

Definitions:

Brain-Storming Process

A creative group activity aimed at generating a large number of ideas to solve a problem, without initially judging or evaluating them.

Written Ideas

Ideas or concepts that have been documented in writing, facilitating communication, analysis, and further development.

Incremental Innovation

The process of making small improvements or upgrades to existing products, services, or processes, rather than creating something completely new.

Radical Innovation

Innovation that fundamentally changes existing practices, products, or technologies, often creating new markets.