Spring Company's cost structure is dominated by variable costs with a contribution margin ratio of 0.20 and fixed costs of $60,000. Every dollar of sales contributes 20 cents toward fixed costs and profit. The cost structure of a competitor, Winters Company, is dominated by fixed costs with a higher contribution margin ratio of 0.70 and fixed costs of $310,000. Every dollar of sales contributes 70 cents toward fixed costs and profit. Both companies have sales of $500,000 per month. Required: a. Compare the two companies' cost structures. b. Suppose that both companies experience an 8 percent increase in sales volume. By how much would each company's profits increase?

Spring Company's cost structure is dominated by variable costs with a contribution margin ratio of 0.20 and fixed costs of $60,000. Every dollar of sales contributes 20 cents toward fixed costs and profit. The cost structure of a competitor, Winters Company, is dominated by fixed costs with a higher contribution margin ratio of 0.70 and fixed costs of $310,000. Every dollar of sales contributes 70 cents toward fixed costs and profit. Both companies have sales of $500,000 per month. Required: a. Compare the two companies' cost structures. b. Suppose that both companies experience an 8 percent increase in sales volume. By how much would each company's profits increase?

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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