Question

What two cost conditions cause us to increase volume to maintain or increase profitability?

a. Fixed Costs and Variable Costs
b. Marginal Costs and Sunk Costs
c. Direct Costs and Indirect Costs
d. Operating Costs and Overhead Costs

Answer 1

Increasing production volume can help in spreading out fixed costs over more units and effectively manage variable costs, both of which are essential to maintain or enhance profitability.

Step-by-step explanation:

The two cost conditions that cause us to increase volume to maintain or increase profitability are Fixed Costs and Variable Costs. Fixed costs do not change with the amount of goods or services produced, so increasing volume spreads these costs over more units, effectively reducing the cost per unit. Conversely, variable costs are directly tied to the production volume, increasing as more goods or services are produced. However, when considering profitability, managing variable costs efficiently and spreading out fixed costs can lead to increased profitability.