Couzen's Company’s cost structure is dominated by variable costs with a contribution margin ratio of 0.27 and fixed costs of $513,000. Every dollar of sales contributes 27 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 0.77 and fixed costs of $2,650,500. Every dollar of sales contributes 77 cents toward fixed costs and profit. Both companies have sales of $4,275,000 annually. Required: Compare the two companies’ cost structures. 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 0.27 and fixed costs of $513,000. Every dollar of sales contributes 27 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 0.77 and fixed costs of $2,650,500. Every dollar of sales contributes 77 cents toward fixed costs and profit. Both companies have sales of $4,275,000 annually. Required: Compare the two companies’ cost structures. Suppose that both companies experience a 12 percent decrease in sales volume. By how much would each company’s profits decrease?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Couzen's Company’s cost structure is dominated by variable costs with a contribution margin ratio of 0.27 and fixed costs of $513,000. Every dollar of sales contributes 27 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 0.77 and fixed costs of $2,650,500. Every dollar of sales contributes 77 cents toward fixed costs and profit. Both companies have sales of $4,275,000 annually.
Required:
- Compare the two companies’ cost structures.
- Suppose that both companies experience a 12 percent decrease in sales volume. By how much would each company’s profits decrease?
Transcribed Image Text:Complete this question by entering your answers in the tabs below.
Required A Required 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 profits decrease by
Jones & Family's profits decrease by
< Required A
Required B >
Transcribed Image Text: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
Percentage
%
%
%
%
%
Required A
Jones & Family
Amount
Percentage
Required B >
%
%
%
%
%
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