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Horngren'S Financial And Managerial Accounting
Found in: Page 1120

Short Answer

What is a company’s cost structure? How can cost structure affect a company’s profits?

The proportion of fixed costs to variable costs is known as the company’s cost structure.

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Step by Step Solution

Step 1: Company’s cost structure

The proportion of fixed costs to variable costs is known as the company’s cost structure. It is important to design a cost structure because small changes in costs could have a substantial impact on profits.

Step 2: How can cost structure affect a company’s profit? 

Companies having higher fixed costs are at greater risk, but at the same time they have the opportunity for greater profits.

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