If a company expands capacity by 40% or 40,000 units by increasing its fixed costs, and its unit selling price and unit variable cost remain the same, its total profit will
A) stay the same if no additional units are sold because the revenue remains the same.
B) increase if 2,000 additional units are sold.
C) decrease by the amount of the additional fixed costs if no additional units are sold.
D) increase by the selling price per unit if 2,000 additional units are sold.

Question

Quizplus · Accepted Answer

If no additional units are sold, the increase in fixed costs will decrease total profit by the amount of the additional fixed costs, as revenue remains unchanged.

If a Company Expands Capacity by 40% or 40,000 Units