If the company has some fixed costs, as sales increase then a ________ of sales dollars flows to the bottom line if these costs are truly fixed and do not vary with production or sales.
A) lower percentage
B) higher percentage
C) equal percentage
D) much lower

Question

Quizplus · Accepted Answer

If the fixed costs remain constant then as sales increase, the total costs remain the same but are spread over a larger number of units sold, making the cost per unit lower. This leads to a higher profit margin which is the percentage of sales that are left after all costs are deducted. Therefore, option B i.e. higher percentage is the correct answer.

If the Company Has Some Fixed Costs, as Sales Increase