20) If Company A has an operating leverage of 3.2 and Company B has an operating...
20) If Company A has an operating leverage of 3.2 and Company B has an operating leverage of 1.0, which of the following is true?
A) Company A has higher sales than Company B
B) Company B has lower contribution margin per unit than Company A
C) Company A is structured better to withstand a downturn in sales than Company B
D) Company B is structured better to withstand a downturn in sales than Company A
Homework Answers
Operating leverage of Company A is 3.2 and of Company B is 1.0. It indicates that Company A is riskier than company B. So, if there is a downtrend in the sales then Company B will be in a better position than that of Company A.
So, from the given information Option D is true ( Company B is structured better to withstand a downturn in sales than company A )
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20) If Company A has an operating leverage of 3.2 and Company B
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