Question
Spring Companys cost structure is dominated by variable costs with a contribution margin ratio of 0.25 and fixed costs of $100,000. Every dollar of sales
Spring Companys cost structure is dominated by variable costs with a contribution margin ratio of 0.25 and fixed costs of $100,000. 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 0.80 and fixed costs of $430,000. Every dollar of sales contributes 80 cents toward fixed costs and profit. Both companies have sales of $600,000 per month. Required: 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?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started