ECONOMICS
ENTREPRENEURS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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True
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False
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Either A or B
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None of the above
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Detailed explanation-1: -A company with greater variable costs compared to fixed costs shows a more consistent per-unit cost and, therefore, a more consistent gross margin, operating margin, and profit margin.
Detailed explanation-2: -Typically, the higher the level of fixed costs, the higher the level of risk. However, as sales volumes increase, the payoff is typically greater with higher fixed costs than with higher variable costs. In other words, the higher the risk the greater the payoff.
Detailed explanation-3: -Since they stay the same throughout the financial year, fixed costs are easier to budget. They are also less controllable than variable costs because they’re not related to operations or volume. Variable costs, however, change over a specified period and are associated directly to the business activity.
Detailed explanation-4: -Therefore, the correct answer is B. Costs that vary in total in direct proportion to changes in the level of activity.