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Sir there is a question in kit that if for a given level of activity firms ratio of variable cost to fixed cost were to fall,what would be effect on firms operating risk.Will it increase or decrease?sir here how we will determine it?
But I explain all this in the free lectures – with an example!!!
This is operational risk, and the greater the variable costs relative to the fixed costs, then the lower the operational risk.
There is no standard measure of this, but the ratio of variable costs to fixed costs is one way of looking at it. In the exam, more important is to be able to explain the relevance – as I do in the example in the free lectures.
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