Companies have different cost structures, both companies currently show a profit of $$21,000$ based on sales of $14,000$ units as shown in the following financial statements for the month of June. Both companies hold no inventory and sell contractual orders in the month.

For the Month of June Company A

Sales $($$$20)$ $$280,000$

Variable cost of goods sold $$5\mathrm{.}00,$ $$70,000$

Variable selling and administrative costs $$2\mathrm{.}00,$ $$28,000$

Contribution margin $182,000$

Fixed cost of goods sold $105,000$

Fixed selling and administrative costs $56,000$

Profits Before$-$Tax $$21,000$

Company B

Sales $($$$20)$ $$280,000$

Variable cost of goods sold $7\mathrm{.}50,105,000$

Variable selling and administrative costs $$4\mathrm{.}00,56,000$

Contribution margin $119,000$

Fixed cost of goods sold $70,000$

Fixed selling and administrative costs $28,000$

Profits Before$-$Tax $$21,000$

$$ 

 

REQUIRED

Due to an expected downturn in market conditions, both companies are forecasting the effect on profitability of different scenarios on monthly profit.

For each company, determine the impact on monthly profit using differential analysis for each of the following separate scenarios.

$1.$ Sales volume decreases to $11,200$ units for the month for both companies. What is the Net change on June profits on company A and B$?$