The cost structure of Dennis's Retail Mart is dominated by variable costs with a contribution margin ratio of 0.35 and fixed costs of $86,380. Every dollar of sales contributes 35 cents toward fixed costs and profit. The cost structure of a competitor, Oakfield Convenience Store, is dominated by fixed costs with a higher contribution margin ratio of 0.65 and fixed costs of $617,000. Every dollar of sales contributes 65 cents toward fixed costs and profit. Both companies have sales of $1,234,000 for the year.

Required:

1. Compare the two companies cost structures.
2. Suppose that both companies experience a 10 percent increase in sales volume. By how much would each companys profits increase?

Compare the two companies cost structures.

Dennis's Retail Mart'sOakfield Convenience StoreAmountPercentageAmountPercentageSales%%Variable cost%%Contribution margin%%Fixed costs%%Operating profit%%

• Suppose that both companies experience a 10 percent increase in sales volume. By how much would each companys profits increase?

Dennis's Retail Mart's profits increase byOakfield Convenience Store's profits increase by