Question

Select the correct statement regarding the relationship between cost behavior and profits.a. A pure variable cost structure offers higher potential rewards. b. In a pure fixed cost structure, the unit selling price and unit contribution margin are equal. c. In a pure variable cost structure, when revenue increases by $1, so do profits.

Answer 1

Answer:

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

Explanation:

In a pure fixed cost structure, a company's total cost remains the same whether the sales level increases or decreases. This type of cost structure may only apply to the production of services, not the production of goods.

Since the contribution margin = sales price - variable cost, if the variable cost is zero, then the contribution margin is equal to the selling price.