When a Greater Proportion of Costs Are Fixed Costs, Then

question 46

Multiple Choice

When a greater proportion of costs are fixed costs, then ________.

• A) a small increase in sales results in a small decrease in operating income
• B) when demand is low the risk of loss is high
• C) a decrease in sales reduces the total fixed cost per unit
• D) a decrease in sales reduces the cost per unit

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Definitions:

Diminishing-Balance

A method of depreciation that accelerates the rate at which an asset loses value, applying a constant rate to the declining book value each period.

Constant Percentage

A method or rate that does not change over time, often used in calculations of growth, discount, or interest rates.

Units-of-Production Method

A depreciation method that allocates the cost of an asset over its useful life based on the number of units it produces or hours it operates.

Depreciation Expense

An accounting method of allocating the cost of a tangible asset over its useful life, reflecting the asset's consumption, wear and tear, or obsolescence.