Answers
Answers
- Answer #1
Correct Answer= Option #4: Operating Leverage will ‘dramatically INCREASE’.
This is because Operating leverage = Contribution margin / Operating income.
Fixed cost being same, when company moves near Break even point, the change in Contribution margin is MORE than Operating Income. - Answer #2
Correct Answer = Option #3: Increasing production will increase net income without sales increase.
This is because when more units get produced, the fixed cost per unit decreases and lesser amount of total fixed overhead gets absorbed to units sold.
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