ECONOMICS
PROFIT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Yes, I understand this from the notes
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No, I don’t understand this from the notes
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No, I don’t understand this, as I have not read the notes
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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: -Answer and Explanation: The correct option is (B) variable costs per unit are constant and fixed costs per unit fluctuate. Within the relevant range, total fixed costs remain the same. If the number of units changes (increase or decrease), the total fixed cost is spread across the changed units.
Detailed explanation-3: -Variable costs are a central part in determining a product’s contribution margin, the metric used to determine a company’s break-even or target profit level. Examples of variable costs include raw materials, labor, utilities, commission, or distribution costs.
Detailed explanation-4: -Therefore, the correct answer is B. Costs that vary in total in direct proportion to changes in the level of activity.