Hard Nails and Bright Nails are competing nail salons. Both companies have the s

Question

Hard Nails and Bright Nails are competing nail salons. Both companies have the same number of customers. Both charge the same price for a manicure. The only difference is that Hard Nails pays its manicurists on a salary basis (i.e., a fixed cost structure) while Bright Nails pays its manicurists on the basis of the number of customers they serve (i.e., a variable cost structure). Both companies currently make the same amount of net income. If sales of both salons increase by an equal amount, Hard Nails:

Explanation / Answer

Variable cost varies with change in sales whereas fixed cost remain same irrespective of whether sale is increased or decreased.

So when sales is increased ,variable cost will also increased but fixed cost will remain same.

Hard nails -Net income will Increase at higher rate than Bright nails as increase in sales will have no impact on fixed cost

Bright nails -Net income will Increase at lower rate than hard nails as Increase in sales has direct impact on variable cost(variable cost will increase)

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.