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

Question

Quizplus · Accepted Answer

A fixed cost structure involves higher fixed costs and lower variable costs, leading to greater risk due to the need to cover fixed costs regardless of sales volume. However, it also offers a higher opportunity for profitability because once fixed costs are covered, the incremental profit from each additional unit sold is higher.

Select the Correct Statement from the Following