If a company has fixed costs and is operating at a level abo

If a company has fixed costs and is operating at a level above the break-even point, what happens to profits when sales increase by 20%?

Profits will increase by more than 20%.

Profits will decrease by less than 20%.

Profits will increase by 20%.

Profits will increase by less than 20%.

Solution

Answer is C \"Profit will increase by 20%\"

If Company is operating at breakeven level and sales increases by 20%, then profit will be the increase in the contribution margin which will also be 20%.