If you were a start-up business, would you rather have high fixed costs and a low...

If you were a start-up business, would you rather have high fixed costs and a low contribution margin or low fixed costs and a high contribution margin? Alternatively, as you became a more mature company, which would be your better choice?

Give an example to support your conclusion.

Solutions

Expert Solution

For a Start up company, the volume of sales will be lower, therefore, lower breakeven point will be beneficial so that the company is not making loss. Therefore, it will prefer, low fixed costs and a high contribution margin.

However, as a company mature, its sales will increase and to attain operating leverage, it would prefer high fixed costs and a low contribution margin. Since, as volumes increase at no further incremental cost it can achieve profits.

	Start up	Matured Company
Eg - Fixed Cost	$ 10,000.00	$ 15,000.00
Contribution per unit	$ 10.00	$ 5.00
Units to Breakeven	1,000.00	3,000.00

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

1. If you were to consider yourself and entrepreneur, would you rather start your own business...

1. If you were to consider yourself and entrepreneur, would you rather start your own business or buy an existing one? Justify and explain your answer thoroughly. 2.. Given y our answer to question number 1, would you utilize a venture capital firm? Why or why not?

If you were a small business owner would you want to most of your costs fixed...

If you were a small business owner would you want to most of your costs fixed or variable?

You are planning a business venture and have determined the following: 1) initial start-up costs will...

You are planning a business venture and have determined the following: 1) initial start-up costs will be $50,000; 2) revenue will be $25,000 per year for 6 years; 3) costs will be $11,000 per year; and 4) you will be able to sell the assets at the end of the 6 years for a salvage value of $3000. If the required rate of return is 12%, what is the net present value? what is the Internal Rate of Return?

If you an investor, would you rather have a firm issue a fixed or variable rate?...

If you an investor, would you rather have a firm issue a fixed or variable rate? Why?

QUESTION 1 An information product typically has low total fixed costs and high marginal costs. high...

QUESTION 1 An information product typically has low total fixed costs and high marginal costs. high total fixed costs and high marginal costs. low total fixed costs and low marginal costs. high total fixed costs and low marginal costs. QUESTION 2 Advertising intended to reach as many consumers as possible, typically through television, newspaper, or magazine ads is referred to as direct marketing. mass marketing. subliminal advertising. interactive advertising. QUESTION3 If firms in a monopolistically competitive industry are operating with...

1.) If you were convicted of a crime, would you rather have a bench trial or...

1.) If you were convicted of a crime, would you rather have a bench trial or or jury trial? Why? 2.) Describe the jury selection process. How are individuals chosen? 3.) If the jury decides on a "not guilty" verdict even if jury nullification occurs, can they appeal the verdict? Why or why not?

4. Suppose that fixed cost for a firm in the automobile industry (start up costs of...

4. Suppose that fixed cost for a firm in the automobile industry (start up costs of factories, capital equipment, and so on) is $5 Billion and that the variable cost is $17,000 for each automobile produced. Because more firms increase competition in the market, the market price falls as more firms enter an automobile industry, or specifically, P = 17,000 + (150/n), where n represent the number of firms in the industry. Assume that the initial size of the automobile...

Consider this scenario. You have a feasible business idea and the business estimated start-up cost is...

Consider this scenario. You have a feasible business idea and the business estimated start-up cost is USD 65,000.00. You have a savings but it is not enough to cover the full expenses to launch your business. Discuss what other sources of finance that are available in your country that you believe you can access. Also, tell us why you have chosen those sources

Would you rather purchase a used car that costs $1050 up-front and will cost $300/year to...

Would you rather purchase a used car that costs $1050 up-front and will cost $300/year to run or a used car that costs $1300 up-front and will cost $250/year to run? Assume that you will own the car for 5 years and your discount rate is 5%

Answer the following: 1. If you were to start a business, which ownership form would you...

Answer the following: 1. If you were to start a business, which ownership form would you choose? What factors might affect your choice? 2. Why might an investor choose to become a partner in a limited partnership instead of purchasing the stock of an open corporation? 3. Discuss the following statement: “Corporations are not really run by their owners.” 4. What kinds of services do not-for-profit corporations provide? Would a career in a not-for-profit corporation appeal to you? 5. Is...

Subjects