With the existence of fixed operating costs, an increase in sales will result in ________ increase in EBIT.
A) a proportional
B) an equal
C) a less than proportional
D) a more than proportional

Question

Quizplus · Accepted Answer

With fixed operating costs, an increase in sales leads to a more than proportional increase in Earnings Before Interest and Taxes (EBIT) because the fixed costs are spread over more units, reducing the cost per unit and increasing profitability at a faster rate than sales increase.

With the Existence of Fixed Operating Costs, an Increase in Sales