Fixed costs are the cost which remains constant in totality at each level of activity. It do not change with the change in output level. It is an unavoidable cost. Variable cost is the cost which changes in direct proportion to changes in level of activity. It remains constant per unit of output and increase at same rate as increase in output level. It is an avoidable cost. In the question, we have given the data of two similar companies related to sales, fixed and variable cost and profitability. If sales will double then we have to calculate that which company's profitability will increase.

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Chapter 21, Problem 17DQ

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Fixed costs are the cost which remains constant in totality at each level of activity. It do not change with the change in output level. It is an unavoidable cost.

Variable cost is the cost which changes in direct proportion to changes in level of activity. It remains constant per unit of output and increase at same rate as increase in output level. It is an avoidable cost.

In the question, we have given the data of two similar companies related to sales, fixed and variable cost and profitability. If sales will double then we have to calculate that which company's profitability will increase.

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