A company with a high ratio of fixed costs:

- will not be concerned about fluctuating sales.

- is more likely to experience greater profits when sales are up than a company with mostly variable costs.

- will be able to avoid some of the fixed costs when sales decrease by lowering production.

- is more likely to experience a loss when sales are down than a company with mostly variable costs.

Question

Konnor Zhang

Business

15 September, 01:47

A company with a high ratio of fixed costs:

- will not be concerned about fluctuating sales.

- is more likely to experience greater profits when sales are up than a company with mostly variable costs.

- will be able to avoid some of the fixed costs when sales decrease by lowering production.

- is more likely to experience a loss when sales are down than a company with mostly variable costs.

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Answers (1)

Know the Answer?

Ireland Bean · Answer 1

The correct answer is: more likely to experience a loss when sales are down than a company with mostly variable costs.

Explanation:

The fixed cost ratio is a simple ratio that divides fixed costs by net sales.

The profit formula is:

Profit = Sales - Total cost = (Price * Q) - (FC + VC*Q)

Where

FC=Fixed cost

VC = variable cos t

Q=produce quantity

If sales go down, we have to pay this fixed cost even if we have no sales. So if this Fixed cost are high, is most likely we are going to experience loss