If a company is about to operate in an environment in which there will be a great deal of variability in the level of revenues, then the company
A) should structure its cost structure to have high fixed costs and higher total variable costs.
B) should structure its cost structure to have high fixed costs and consequently lower per unit variable costs.
C) should structure its cost structure to have low fixed costs and consequently higher per unit variable costs.
D) None of the above.

Question

Quizplus · Accepted Answer

When operating in an environment with high variability in revenue, it is important to have a cost structure with low fixed costs and higher per unit variable costs. This allows the company to adjust costs more easily according to changes in revenue. Having high fixed costs would make it harder for the company to adapt to changes in revenue and could lead to financial difficulties if revenue decreases. Therefore, option C is the best choice.

If a Company Is About to Operate in an Environment