If a company has fixed costs and is operating at a level above the break-even point, what happens to profits when sales increase by 20%?

Question

Quizplus · Accepted Answer

If a company has fixed costs, then an increase in sales revenue will lead to a disproportionate increase in profits. This is because the fixed costs are already covered by the existing level of sales, so any additional revenue will have a greater impact on the bottom line. Therefore, a 20% increase in sales will result in a more than 20% increase in profits.

If a Company Has Fixed Costs and Is Operating at a Level