Companies a and B Are in the Same Industry and Are

question 61

Multiple Choice

Companies A and B are in the same industry and are identical except for cost structure.At a volume of 50,000 units,the companies have equal net incomes.At 60,000 units,Company A's net income would be substantially higher than B's.Based on this information,

• A) Company A's cost structure has more variable costs than B's.
• B) Company A's cost structure has higher fixed costs than B's.
• C) Company B's cost structure has higher fixed costs than A's.
• D) At a volume of 50,000 units, Company A's magnitude of operating leverage was lower than B's.

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Definitions:

Penalties

Financial charges or other forms of punishment imposed on an entity for breaking rules, regulations, or agreements.

Synthetic Lease

A financing arrangement that combines elements of both an operating lease and a capital lease, often for tax or balance sheet management.

Special Purpose Entity

A legal entity created by a firm for a specific purpose, often to isolate financial risk.

Sponsoring Corporation

An entity that supports or backs another entity, event, or project, often through financial investment or by lending its brand's credibility.