A manager calculates labor cost percentages for both fixed and variable labor costs. If there are no staff pay raises, and the manager's sales increase by five percent, the fixed labor cost percentage should

Question

Quizplus · Accepted Answer

Fixed labor costs are constant regardless of the level of output or sales. Therefore, if sales increase, the proportion of sales that fixed labor costs represent will decrease, because the same amount of labor cost is spread over a larger amount of sales. Variable labor costs change in direct proportion to the level of output or sales. However, if there are no staff pay raises, the rate at which variable labor costs increase will be consistent with the rate of sales increase, keeping the variable labor cost percentage unchanged.

A Manager Calculates Labor Cost Percentages for Both Fixed and Variable