The "death-spiral" effect refers to:
A) The allocation of fixed overhead costs over time to an increasing volume of output.
B) A possible consequence when variable, not full, costing is used.
C) A likely consequence when fixed overhead allocation rates are based on practical capacity.
D) The continual raising of prices, in response to decreases in sales volume, in an attempt to recover fixed costs.
E) Increases in product demand over time in response to increases in fixed promotional costs.

Question

Quizplus · Accepted Answer

The "death-spiral" effect occurs when a company continually raises prices to try to recover fixed costs after experiencing a decrease in sales volume. This can lead to a further decrease in sales volume, requiring even higher prices to recover costs, and so on, creating a negative cycle or "death-spiral."

The "Death-Spiral" Effect Refers To