Why does company proﬁtability decrease in direct proportion to the payroll expenses?
A) Because payroll represents an asset and an income of the business. The higher payroll incomes are, the higher the proﬁtability will be.
B) Because payroll represents an asset and an income of the business. The lower the payroll expenses are, the higher the proﬁtability will be.
C) Because payroll represents a liability and an expense of the business. The higher payroll expenses are, the lower the proﬁtability will be.
D) Because payroll represents a liability and an expense of the business. The lower payroll expenses

Question

Quizplus · Accepted Answer

Payroll represents a liability and an expense for the business, meaning that it is a cost that decreases the profitability of the company. The higher the payroll expenses, the lower the profitability, as the business will have less money left over after paying its employees. Therefore, reducing payroll expenses can help to increase the profitability of a company. Option A is incorrect, as higher payroll incomes do not necessarily lead to higher profitability, since the cost of payroll needs to be factored into the expenses. Option B is also incorrect, for the same reason. Option D is incorrect, as reducing payroll expenses can actually increase profitability, rather than decreasing it.

Why Does Company Proﬁtability Decrease in Direct Proportion to the Payroll