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Questions and Answers
What is the purpose of categorizing expenses into fixed expenses and variable expenses?
What is the purpose of categorizing expenses into fixed expenses and variable expenses?
- To determine total expenses
- To simplify financial reporting
- To identify areas for cost-cutting (correct)
- To calculate the ratio of variable expenses to net sales
Why are fixed expenses considered different from variable expenses?
Why are fixed expenses considered different from variable expenses?
- Variable expenses are always higher than fixed expenses
- Fixed expenses are easier to control (correct)
- Variable expenses remain constant over time
- Fixed expenses change with production levels
How does calculating the ratio of variable expenses to net sales help a business?
How does calculating the ratio of variable expenses to net sales help a business?
- It categorizes expenses based on time periods
- It identifies fixed expenses accurately
- It determines the total revenue of the business
- It helps in assessing profit margins (correct)
Which type of expense is more likely to decrease when net sales decrease?
Which type of expense is more likely to decrease when net sales decrease?
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In what situation would a business aim to reduce its fixed expenses?
In what situation would a business aim to reduce its fixed expenses?
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