The activity director for City Recreation is planning an activity. She is consid

Question

The activity director for City Recreation is planning an activity. She is considering alternative ways to set up the activity's cost structure. Select the incorrect statement from the following. a, If the director expects a low turnout, she should use a fixed cost structure. b. If the director expects a large turnout, she should attempt to convert variable costs into fixed costs. c. If the director shifts the cost structure from fixed to variable, the level of risk decreases. d. If the director shifts the cost structure from fixed to variable, the potential for profits will be reduced.

Explanation / Answer

In the question, Option ( C) is incorrect. Because if it changes the cost structure from fixed to variable, the risk will increase for the obvious reason of activity becoming incompetitive, thus it will increase the risk of the firm.

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