When fixed operating costs are incurred by the firm, a relative change in ____ is magnified into a larger relative change in earnings before interest and taxes.
A)overhead expenses
B)interest charges
C)labor costs
D)sales revenue

Question

Quizplus · Accepted Answer

When fixed operating costs are incurred by the firm, a relative change in sales revenue is magnified into a larger relative change in earnings before interest and taxes. This is because fixed operating costs remain the same regardless of changes in sales revenue, resulting in a change in earnings before interest and taxes that is proportionately greater than the change in sales revenue.

When Fixed Operating Costs Are Incurred by the Firm, a Relative