Question

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.

Short answer

Expansion of sales leads to an increase in both variable and fixed costs.

Step-by-step solution

Meaning of Fixed cost

A fixed cost could be a cost that remains steady even at greater output levels. No matter how numerous products a company makes, fixed costs must be paid. It is required to pay the same sum in any case of output.

Explaining the variable and fixed cost for the model.

One would consider a significant 65 % rise in sales of a popular smartphone model from Samsung. The cost and sales structures are likely to alter when this happens. If the new sales volume mainly increases outside the relevant range, the selling price per unit, fixed costs, and variable expenses will likely vary. Variable cost per unit may decrease, but overall fixed costs are likely to rise if more room is required to manage and accommodate the growth, for example. Order processing, after-sales support, and invoicing are additional tasks that could become more prevalent.