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
icon
Related questions
Question

Hello question is attached, thanks. 

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?
Transcribed Image Text: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?
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 2 images

Blurred answer
Knowledge Booster
Initial Public Offering (IPO)
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education