The greater the ratio of variable costs to sales,the:
A) more each additional sale contributes to the coverage of fixed costs.
B) lower the level of profitability.
C) more units that must be sold to cover fixed charges.
D) lower the benefit of conducting a sensitivity analysis.

Question

Quizplus · Accepted Answer

When the ratio of variable costs to sales is greater, it means that more units have to be sold to cover fixed charges. This reduces the level of contribution margin per unit and makes it harder to achieve break-even or generate profits. Therefore, the best choice is (C) more units that must be sold to cover fixed charges.

The Greater the Ratio of Variable Costs to Sales,the