One of the risks of using only the variable cost as a base may tempt managers to cut prices as long as prices are above variable cost.

Question

Quizplus · Accepted Answer

If managers only consider variable cost, they may think that as long as the price is higher than the variable cost, they are making a profit. This could lead them to consistently lower their prices, which could eventually result in losing money as they are not factoring in fixed costs and other expenses.

One of the Risks of Using Only the Variable Cost