Select the Incorrect Statement Regarding Cost Structures

question 32

Multiple Choice

Select the incorrect statement regarding cost structures.

• A) Highly leveraged companies will experience greater profits than companies less leveraged when sales increase.
• B) The more variable cost, the higher the fluctuation in income as sales fluctuate.
• C) When sales change, the amount of the corresponding change in income is affected by the company's cost structure.
• D) Faced with significant uncertainty about future revenues, a low leverage cost structure is preferable to a high leverage cost structure.

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Definitions:

Traditional Costing Systems

A method of accounting that allocates overhead costs based on a predetermined rate, often not capturing the actual costs of production accurately.

Manufacturing Costs

The expenses involved in the production of goods, including labor, raw materials, and overhead.

Batch-Level Activities

Activities that are performed each time a batch of goods is handled or processed, regardless of how many units are in the batch. The amount of resource consumed depends on the number of batches run rather than on the number of units in the batch.

Unit-Level Activities

Tasks or processes that vary directly with the number of units produced or services provided.