# A company with a high ratio of fixed costs ______.

Posted By Admin @ September 03, 2022

#### Question:

A company with a high ratio of fixed costs:

- will not be concerned about fluctuating sales.
- is more likely to experience greater profits when sales are up than a company with mostly variable costs.
- will be able to avoid some of the fixed costs when sales decrease by lowering production.
- is more likely to experience a loss when sales are down than a company with mostly variable costs.

The correct answer is: more likely to experience a loss when sales are down than a company with mostly variable costs.

Explanation:

The fixed cost ratio is a simple ratio that divides fixed costs by net sales.

The profit formula is:

Profit = Sales- Total cost =(Price * Q)-(FC + VC*Q)

Where

FC=Fixed cost

VC= variable cos t

Q=produce quantity

If sales go down,  we have to pay this fixed cost even if we have no sales.  So if this Fixed cost are high ,  is most likely we are going to experience loss

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