Question

An organization with high fixed costs (relative to variable costs) will suffer a greater decrease in profit as volume declines than an organization with high variable costs (relative to fixed costs). True or False?

Answer 1

True

Step-by-step explanation:

Fixed cost is the cost which cannot be avoided and is not dependent on level of activity thus, if there is high fixed cost than variable cost, in that case with decrease in level of output the loss will rise rapidly.

Where variable cost is more than fixed cost, then the cost will only increase or incur when there is production accordingly in case of low sale or low production the loss will also be less, as accordingly cost will be less.

Therefore, the statement in question is TRUE