A Cost Structure Which Relies More Heavily on Fixed Costs

question 28

Multiple Choice

A cost structure which relies more heavily on fixed costs makes the company

• A) more sensitive to changes in sales revenue.
• B) less sensitive to changes in sales revenue.
• C) either more or less sensitive to changes in sales revenue, depending on other factors.
• D) have a lower break-even point.

---

Definitions:

Nonparticipating

In the context of insurance or preferred stock, referring to policies or shares that do not entitle the holder to share in profits beyond a specified amount.

Stockholders

Individuals or entities that own shares in a corporation, thus holding an ownership stake.

Dividends in Arrears

Dividends on cumulative preferred stock that have not been paid in the period they were due, accumulating until paid by the corporation.

Book Value

Book value is the value of an asset according to its balance sheet account balance, taking into account the cost of the asset minus any depreciation, amortization, or impairment costs.