Question

If Samsung is thinking of expanding sales of its most popular smartphone model by 65%, should we expect its variable and fixed costs for this model to stay within the relevant range? Explain.

Answer 1

Facts- See, Basically if a company wants to expand its operation with some extent then chances are there that fixed cost will not be increased but in case if 65% expansion is there then we can say that this is case where fixed cost can also be affected.

Explanation- There are few factor which affects fixed cost as well however worth mentioning that variable cost is associated with production and incurred separately for each unit so variable cost will get increased and there is no question of choice. But in case where we talk about fixed cost there might be some chances that it will not increase but in case of 65% and it seems that this very huge expansion as needs to buy additional place to establish a plant and also some other fixed cost would be there therefore we can say that there are strong chances that fixed income will get increase.

Also to mentioned that fixed cost are considered not to affect your profit somehow that much but in actual there are some fixed cost types are there which needs to incur accordingly. Even some fixed cost are semiannually and their increments are linked to some batch size or production size.

Conclusion- Considering 65% expansion obviously fixed as well as variable both cost will- get increased.