If two companies have the same total sales and total expenses and make the same product,the volatility of net operating income with changes in sales will tend to be greater in the company with a higher proportion of fixed expenses in its cost structure.

Question

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This is because a higher proportion of fixed expenses in the cost structure means that there is less flexibility to adjust expenses in response to changes in sales. Therefore, small changes in sales can lead to larger changes in net operating income.

If Two Companies Have the Same Total Sales and Total