Question

Why is it important to evaluate increases and decreases in operating expenses? Select one: a. Increases in operating expenses are always an indication that a firm will increase sales b. None of the above c. Increases in operating expenses may indicate inefficiencies, and decreases in operating expenses may be detrimental to long-term sales growth. d. It is important to determine whether companies are spending at least 10 cents of every sales dollar on advertising expenses.

Answer 1

Answer:

C) Increases in operating expenses may indicate inefficiencies, and decreases in operating expenses may be detrimental to long-term sales growth.

Explanation:

You should always be very careful and meticulous when you are analyzing operating expenses and all expenses in general. Businesses should always try to lower their expenses, since profit is determined by revenue - expenses.

But when you are evaluating operating you cannot do it as a separate factor. For example, sales commissions are operating expenses, but when they lower you are in trouble. But other operating expenses are not that beneficial for a company, for example rent, utilities, etc.