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

Question

Quizplus · Accepted Answer

Fixed operating costs refer to costs that do not vary with the level of sales, such as rent or salaries. As sales decrease, the same amount of fixed operating costs must still be covered, resulting in a greater burden on the remaining revenue. This leads to a more than proportional decrease in EBIT (earnings before interest and taxes).

With the Existence of Fixed Operating Costs, a Decrease in Sales