Question

Why do decreases in company profitability decrease in direct proportion to the payroll expenses?

Multiple Choice

Because payroll represents a liability and an expense of the business. The higher payroll expenses are, the lower the profitability will be.

Because payroll represents a liability and an expense of the business. The lower payroll expenses are, the lower the profitability will be.

Because payroll represents an asset and an income of the business. The higher payroll income are, the higher the profitability will be.

Because payroll represents an asset and an income of the business. The lower the payroll expenses are, the higher the profitability will be.

Answer 1

Answer (a) because payroll represents a liability and an expense of the business. The higher payroll expenses are, the lower the profitability will be.

Payroll expenses means expenses on wages, salary, bonus, commission, and other employee cost incurred by company for getting their human resources service. This is a major part of cost of an organization, also directly company profit. If there are high payroll expenses then profit will be low and low payroll cost will improve company profit.