All other things the same, in periods of increasing sales, net operating income will tend to increase more rapidly in a company with high fixed costs and low variable costs than in a company with high variable costs and low fixed costs.

Question

Quizplus · Accepted Answer

In periods of increasing sales, the contribution margin (sales - variable costs) will increase more rapidly for a company with high fixed costs and low variable costs, resulting in a higher net operating income. On the other hand, a company with high variable costs and low fixed costs will experience a slower increase in contribution margin as sales increase, resulting in a lower net operating income.

All Other Things the Same, in Periods of Increasing Sales