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.

Question

Business

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3 April, 06:12

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.

+1

Answers (1)

Know the Answer?

Matias Decker · Answer 1

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.