Company A and Company B sell their products for exactly the same sales price.Both have the same annual fixed costs.Company A's variable and fixed costs at break-even total $60,000 and $30,000 respectively.Company B's variable and fixed costs at break-even total $30,000 and $60,000 respectively.Both companies have the same net income.If both companies experience an increase in sales, which company will have the higher net income?

Question

Quizplus · Accepted Answer

At the same sales price, Company B has a lower variable cost at break-even than Company A, meaning it has a higher contribution margin per unit sold. As a result, Company B will have a higher net income when both companies experience an increase in sales.

Company a and Company B Sell Their Products for Exactly