Q24RQ - Horngren'S Financial And Managerial Accounting

Question

What is a company’s cost structure? How can cost structure affect a company’s profits?

 

Step-by-Step Solution

Answer

The proportion of fixed costs to variable costs is known as the company’s cost structure.

 

Step 1: Company’s cost structure

The proportion of fixed costs to variable costs is known as the company’s cost structure. It is important to design a cost structure because small changes in costs could have a substantial impact on profits.

Step 2: How can cost structure affect a company’s profit?

Companies having higher fixed costs are at greater risk, but at the same time they have the opportunity for greater profits.