[sym7081]

Hello, I'm new member here, glad being part of the great website and great people here.

Please help me out with this accounting question. Im Stuck totally :(

Question:

If company A has mostly Fixed cost, and company B has mostly Variable cost. When sales volume increase, which company would has higher percentage increase in profit?

And I'm required to write an explanation for around 500 words with example using numbers.

I'd much appreciate if any of you here don't mind giving me some Hints on what do I have to discuss for the answer inorder to support the conclusion which is either company A or B would has higher percentage increase in profit.

Thanks for your kindly help.

Vic

[Superfly999]

mmmmm, I really am not sure on this one; but I think I know what it is.
Due to the rules here I can't give a flat out answer because you haven't made an effort (it is a homework rule). But here is a hint you know that comp A has a constant cost rate but comp B has a "variable" cost rate. Think about what the word "variable" means. Would you know if comp b will have higher or lower percentage increase in profit then comp A do to the variable cost?

[sym7081]

Hello, thanks for the hints :-) I do think compny A will gain higher percentage increase in profit since it has more fixed costs, mean it has a greater return (more profits) as revenues increase, eventhought having higher fixed cost would has more risk of loss :-)
What do you think about my conclusion? By the way, even I know which company would gain more percentage increase in profit, I'd still not know how I'm going to write it up to 500 words haha.

Have a nice day.
Vic