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Couzen's Company's cost structure is dominated by variable costs with a contribution margin ratio of 0.26 and fixed costs of $454,500. Every dollar of sales contributes 26 cents toward fixed costs and profit. The cost structure of a competitor, Jones & Family, is dominated by fixed costs with a higher contribution margin ratio of 0.76 and fixed costs of $2,348,250. Every dollar of sales contributes 76 cents toward fixed costs and profit. Both companies have sales of $3,787,500 annually. Required: a. Compare the two companies' cost structures. b. Suppose that both companies experience a 12 percent decrease in sales volume. By how much would each company's profits decrease?

Couzen's Company's cost structure is dominated by variable costs with a contribution margin ratio of 0.26 and fixed costs of $454,500. Every dollar of sales contributes 26 cents toward fixed costs and profit. The cost structure of a competitor, Jones & Family, is dominated by fixed costs with a higher contribution margin ratio of 0.76 and fixed costs of $2,348,250. Every dollar of sales contributes 76 cents toward fixed costs and profit. Both companies have sales of $3,787,500 annually. Required: a. Compare the two companies' cost structures. b. Suppose that both companies experience a 12 percent decrease in sales volume. By how much would each company's profits decrease?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Exercise 3-37 (Algo) Analysis of Cost Structure (LO 3-2) Couzen's Company's cost structure is dominated by variable costs with a contribution margin ratio of 0.26 and fixed costs of $454,500. Every dollar of sales contributes 26 cents toward fixed costs and profit. The cost structure of a competitor, Jones & Family, is dominated by fixed costs with a higher contribution margin ratio of 0.76 and fixed costs of $2,348,250. Every dollar of sales contributes 76 cents toward fixed costs and profit. Both companies have sales of $3,787,500 annually. Required: a. Compare the two companies' cost structures. b. Suppose that both companies experience a 12 percent decrease in sales volume. By how much would each company's profits decrease? Complete this question by entering your answers in the tabs below. Required A Required B Compare the two companies' cost structures. Couzen's Company Sales Variable cost Contribution margin Fixed costs Operating profit Amount $ 3,787,500 984,750 909,000 454,500 454,500 $ $ Percentage 100 % 26 % 0% $ 0% 0% $ $ < Required A Jones & Family Amount 3.787.500 909,000 2,878,500 2,348,250 454,500 Percentage Required B 0% 0% 0% 0% 0%
Transcribed Image Text:Exercise 3-37 (Algo) Analysis of Cost Structure (LO 3-2) Couzen's Company's cost structure is dominated by variable costs with a contribution margin ratio of 0.26 and fixed costs of $454,500. Every dollar of sales contributes 26 cents toward fixed costs and profit. The cost structure of a competitor, Jones & Family, is dominated by fixed costs with a higher contribution margin ratio of 0.76 and fixed costs of $2,348,250. Every dollar of sales contributes 76 cents toward fixed costs and profit. Both companies have sales of $3,787,500 annually. Required: a. Compare the two companies' cost structures. b. Suppose that both companies experience a 12 percent decrease in sales volume. By how much would each company's profits decrease? Complete this question by entering your answers in the tabs below. Required A Required B Compare the two companies' cost structures. Couzen's Company Sales Variable cost Contribution margin Fixed costs Operating profit Amount $ 3,787,500 984,750 909,000 454,500 454,500 $ $ Percentage 100 % 26 % 0% $ 0% 0% $ $ < Required A Jones & Family Amount 3.787.500 909,000 2,878,500 2,348,250 454,500 Percentage Required B 0% 0% 0% 0% 0%
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