Question

At a level of $500,000 in sales for a segment of the Guns ‘n’ Roses Company,...

At a level of $500,000 in sales for a segment of the Guns ‘n’ Roses Company, variable expenses are 38% of sales and traceable fixed expenses are 46% of sales. If sales volume for the segment goes down by $20,000, the ratio of variable expenses to sales will _________ and the ratio of traceable fixed expenses to sales will _________. Group of answer choices

decrease, stay the same

stay the same, stay the same

increase, decrease

stay the same, increase

decrease, decrease

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Homework Answers

Answer #1

The correct answer is the first option - stay the same, increase.

Variable cost ratio (i.e ratio of variable expenses to sales) will stay the same irrespective of whether the sales increase or decrease.

The ratio of traceable fixed expenses to sales will increase. The reason being that the sales has decreased hence, the denominator will decrease. Whereas the numerator - fixed expenses will stay constant. Fixed expenses stay constant irrespective of any change in volume. Hence, the end result would be the ratio increasing.

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