Question
The Greenback Stores cost structure is dominated by variable costs with a contribution margin ratio of 0.40 and fixed costs of $63,900. Every dollar of
The Greenback Stores cost structure is dominated by variable costs with a contribution margin ratio of 0.40 and fixed costs of $63,900. Every dollar of sales contributes 40 cents toward fixed costs and profit. The cost structure of a competitor, One-Mart, is dominated by fixed costs with a higher contribution margin ratio of 0.70 and fixed costs of $276,900. Every dollar of sales contributes 70 cents toward fixed costs and profit. Both companies have sales of $710,000 for the month.
Required:
a. Compare the two companies cost structures.
b. Suppose that both companies experience a 10 percent increase in sales volume. By how much would each companys profits increase?
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