If a firm that has fixed costs in its operations does not meet its forecasted sales level, its operating leverage will result in a magnified decrease in net income compared to what is expected.

Question

Answer the following statement true (T) or false (F)

Answer 1

True

If the forecasted sales level is not met, then the production facilities might be expanded too greatly, inventories might be built up too quickly, and so on, and the end result might be that the firm will suffer a magnified income loss. See 16-4: Using Leverage and Forecasting for Control