How does seasonality create fluctuations in a firm's net income over a year?
A) Cost of goods sold will rise and fall along with sales, while administrative and other costs will remain relatively steady.
B) Cost of goods sold will rise when sales fall, and vice versa, while administrative and other costs will remain relatively steady.
C) Cost of goods sold, along with administrative and other costs, will rise when sales fall, and vice versa.
D) Cost of goods sold, along with administrative and other costs, will rise and fall along with sales.

Question

Quizplus · Accepted Answer

Seasonality creates fluctuations in net income because the cost of goods sold will rise and fall along with sales, while administrative and other costs will remain relatively steady. This means that during high sales periods, the cost of goods sold will also be high, reducing the net income. Conversely, during low sales periods, the cost of goods sold will be low, increasing the net income. However, administrative and other costs will typically not change with sales, so they will have a smaller impact on net income fluctuations.

How Does Seasonality Create Fluctuations in a Firm's Net Income