Dolph and Evan started the DE Restaurant in 20X3.They rented a building,bought equipment,and hired two employees to work full time at a fixed monthly salary.Utilities and other operating charges remain fairly constant during each month.
During the past two years,the business has grown with average sales increasing 1% a month.This situation pleases both Dolph and Evan,but they do not understand how sales can grow by 1% a month while profits are increasing at an even faster pace.They are afraid that one day they will wake up to increasing sales but decreasing profits.
Required:
Explain why the profits have increased at a faster rate than sales.Use the terms variable costs and fixed costs in your response.

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The Answer of Dolph and Evan started the DE Restaurant in 20X3.They rented a building,bought equipment,and hired two employees to work full time at a fixed monthly salary.Utilities and other operating charges remain fairly constant during each month.
During the past two years,the business has grown with average sales increasing 1% a month.This situation pleases both Dolph and Evan,but they do not understand how sales can grow by 1% a month while profits are increasing at an even faster pace.They are afraid that one day they will wake up to increasing sales but decreasing profits.
Required:
Explain why the profits have increased at a faster rate than sales.Use the terms variable costs and fixed costs in your response.

Dolph and Evan Started the DE Restaurant in 20X3