Spring Companys cost structure is dominated by variable costs with a contribution margin ratio of 0.40 and fixed costs of $88,500. Every dollar of sales contributes 40 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 $265,500. Every dollar of sales contributes 70 cents toward fixed costs and profit. Both companies have sales of $590,000 per month.

Required:

a. Compare the two companies cost structures for annual and percentage

SPRING COMPANY WINTER COMPANY ANNUAL PERCENTAGE ANNUAL PERCENTAGE

SALES VARIABLE COST CONTRIBUTION MARGIN FIXED COSTS OPERATING PROFIT

Suppose both companies experience a 10 percent sales increase in sales volume. By how much would each company's profits increase?

SPRING COMPANY PROFITS INCREASE BY HOW MUCH?

WINTER COMPANY PROFITS INCREASE BY HOW MUCH?