The cost structure of Dennis's Retail Mart is dominated by variable costs with a contribution margin ratio of 0.30 and fixed costs of $60,000. Every dollar of sales contributes 30 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 0.70 and fixed costs of $540,000. Every dollar of sales contributes 70 cents toward fixed costs and profit. Both companies have sales of $1,200,000 for the year.

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?