Question

Select the incorrect statement regarding the relationship between cost behavior and profits.

A. A pure fixed cost structure offers more security if volume expectations are not achieved
B. In a pure variable cost structure, when revenue increases by $1, so do profits
C. In a pure fixed cost structure, the unit selling price and unit contribution margin are equal
D. A pure variable cost structure offers higher potential rewards.

Answer 1

Answer:

C. In a pure fixed cost structure, the unit selling price and unit contribution margin are equal.

Explanation:

In Accounting, cost behavior is an indication of how costs in a firm reacts to change in activity levels. There are basically three types of cost behavior; fixed costs, variable costs and semi-variable costs.

The relationship between cost behavior and profits are;

- A pure fixed cost structure offers more security if volume expectations are not achieved.

- In a pure variable cost structure, when revenue increases by $1, so do profits.

- A pure variable cost structure offers higher potential rewards.