Spring Companys cost structure is dominated by variable costs with a contribution margin ratio of 0.25 and fixed costs of $57,200. Every dollar of sales contributes 25 cents toward fixed costs and profit. The cost structure of a competitor, Winters Company, is dominated by fixed costs with a higher contribution margin ratio of 0.70 and fixed costs of $255,200. Every dollar of sales contributes 70 cents toward fixed costs and profit. Both companies have sales of $440,000 per month.

a. Compare the two companies cost structures.

b. Suppose that both companies experience a 20 percent increase in sales volume. By how much would each companys profits increase?

Compare the two companies cost structures.

	SPRING COMPANY			WINTERS COMPANY
	Amount	Percentage		Amount	Percentage
Sales			%			%
Variable cost
Contribution margin			%			%
Fixed costs
Operating profit			%			%

Suppose that both companies experience a 20 percent increase in sales volume. By how much would each companys profits increase?

Spring Companys profits increase by
Winter Company's profits increase by