Question

Select the correct statement from the following. Multiple Choice A fixed cost structure offers less risk (i.e., less earnings volatility) and higher opportunity for profitability than does a variable cost structure. A variable cost structure offers less risk and higher opportunity for profitability than does a fixed cost structure. A fixed cost structure offers greater risk but higher opportunity for profitability than does a variable cost structure. A variable cost structure offers greater risk but higher opportunity for profitability than does a fixed cost structure.

Answer 1

The correct answer is A fixed cost structure offers greater risk but higher opportunity for profitability than does a variable cost structure.

Step-by-step explanation:

By establishing a fixed cost structure, higher levels of profitability can be achieved, which can serve to ensure the organization's overhead, although it is not always possible to achieve these levels taking into account market behavior. In the case of variable costs, it will be very difficult to take advantage of the production, because due to their changing condition they are simply adjusted to a specific period or time, and the profits remain constant during that time.

Answer 2

Option C is correct.

A fixed cost structure offers greater risk but higher opportunity for profitability than does a variable cost structure.

Step-by-step explanation:

Under a fixed cost structure, once the fixed costs are recovered the profitability increases at a higher rate than under a variable cost structure.