When a greater proportion of costs are fixed costs, then ________. a decrease in sales reduces...
When a greater proportion of costs are fixed costs, then ________.
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a decrease in sales reduces the total fixed cost per unit |
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a small increase in sales results in a small decrease in operating income |
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when demand is low the risk of loss is high |
||
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a decrease in sales reduces the cost per unit |
Blistre Company operates on a contribution margin of 20% and currently has fixed costs of $530,000. Next year, sales are projected to be $3,000,000. An advertising campaign is being evaluated that costs an additional $90,000. How much would sales have to increase to justify the additional expenditure?
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$450,000 |
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$360,000 |
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$530,000 |
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$600,000 |
Homework Answers
| 1 |
| When a greater proportion of costs are fixed costs, then when demand is low the risk of loss is high |
| When demand is low, the company would not be able to generate adequate contribution margin to cover its fixed costs. |
| Option C is correct |
2
| Additional expenditure | 90000 |
| Divide by Contribution margin ratio | 20% |
| Increase in sales | 450000 |
| Option A $450,000 is correct |
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