However, the cost cut should not affect product or service quality as this would have an adverse effect on sales. By reducing its variable costs, a business increases its gross profit margin or contribution margin. It can make a big impact on the per-unit price if a company has high direct, fixed overhead costs. Companies...Read More

Variable and fixed costs play into the degree of operating leverage a company has. In short, fixed costs are more risky, generate a greater degree of leverage, and leave the company with greater upside potential. On the other hand, variable costs are safer, generate less leverage, and leave the company with a smaller upside potential....Read More