When a greater proportion of costs are fixed costs, then:
A)a small increase in sales results in a small decrease in operating income
B)when demand is low the risk of loss is high
C)when demand is high the breakeven point is increased
D)a decrease in sales reduces the cost per unit

Question

Quizplus · Accepted Answer

When a greater proportion of costs are fixed costs, the risk of loss is high when demand is low because the fixed costs still need to be paid even if sales are low. This means that the contribution margin per unit may not be enough to cover the fixed costs, resulting in a loss.

When a Greater Proportion of Costs Are Fixed Costs, Then