The activity director for City Recreation is planning an activity.She is considering alternative ways to set up the activity's cost s
A) If the director expects a low turnout,she should use a fixed cost structure.
B) If the director expects a large turnout,she should attempt to convert variable costs into fixed costs.
C) If the director shifts the cost structure from fixed to variable,the level of risk decreases.
D) If the director shifts the cost structure from fixed to variable,the potential for profits will be reduced.

Question

Quizplus · Accepted Answer

A manager who expects revenues to increase should use a fixed cost structure.On the other hand,if future sales growth is uncertain or if the manager believes revenue is likely to decline,a variable cost structure makes more sense.Shifting the cost structure from fixed to variable reduces not only the level of risk but also the potential for profits.

The Activity Director for City Recreation Is Planning an Activity