If a cost object such as a product or customer has a negative yellow margin, then:
A)its red margin will be positive.
B)its red margin may be either positive or negative.
C)its red margin will be negative.
D)its red margin will be zero.

Question

Quizplus · Accepted Answer

The yellow margin represents the difference between the revenue and the variable costs associated with producing a product or serving a customer. When the yellow margin is negative, it means that the revenue generated is not enough to cover the variable costs incurred. In such a case, the red margin, which represents the difference between the revenue and the total cost (both variable and fixed costs), is likely to be negative as well. This is because fixed costs, which are not linked to the level of production or sales, will further reduce the profitability of the cost object. Therefore, the correct choice is C: its red margin will be negative.

If a Cost Object Such as a Product or Customer