Spring Companys cost structure is dominated by variable costs with a contribution margin ratio of 0.20 and fixed costs of $60,000. Every dollar of sales contributes 20 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 $310,000. Every dollar of sales contributes 70 cents toward fixed costs and profit. Both companies have sales of $500,000 per month.

Required:

a. Compare the two companies cost structures.

b. Suppose that both companies experience a 8 percent increase in sales volume. By how much would each companys profits increase?

Question

Spring Companys cost structure is dominated by variable costs with a contribution margin ratio of 0.20 and fixed costs of $60,000. Every dollar of sales contributes 20 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 $310,000. Every dollar of sales contributes 70 cents toward fixed costs and profit. Both companies have sales of $500,000 per month.

Required:

a. Compare the two companies cost structures.

b. Suppose that both companies experience a 8 percent increase in sales volume. By how much would each companys profits increase?

Accepted Answer

The Answer is in the image, click to view ...

Question

Spring Companys cost structure is dominated by variable costs with a contribution margin ratio of 0.20 and fixed costs of $60,000. Every dollar of sales

Step by Step Solution

Step: 1

Get Instant Access with AI-Powered Solutions

Step: 2

Step: 3

Ace Your Homework with AI

Students also viewed these Accounting questions

Question

Question

Question

Question

Question

Question

Question

Question

Question