A Company Is Debating Whether to Change Its Cost Structure

question 121

Multiple Choice

A company is debating whether to change its cost structure so that fixed costs increase from $300,000 to $400,000,but variable costs decrease from $5 per unit to $4 per unit.If it were to implement the change at its current production level of 100,000 units,profit would not change.What would happen to the company's profit if the change were implemented and production increased to 125,000 units?

• A)It will stay the same.
• B)It will increase.
• C)It will decrease.
• D)It could increase or decrease.

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Definitions:

Market Price

The price at this moment for buying or selling an asset or service.

Cash Acquisition

The purchasing of a company or asset with immediate payment in full in cash, instead of using financing options or issuing shares.

Synergy Value

The additional value created by combining two companies, resulting from efficiencies or growth opportunities not available to either company individually.

Cash Acquisition

A method of purchasing a company or asset where the buyer uses cash as the form of payment rather than stocks or other forms of payment.