**Understanding Cost Structures: Dennis's Retail Mart vs. Oakfield Convenience Store**The cost structure of Dennis's Retail Mart (DRM) is predominantly influenced by variable costs, with a contribution margin ratio of 0.33. This means that out of every dollar of sales, 33 cents go towards covering fixed costs and generating profit. The fixed costs for DRM total $109,620 annually.In contrast, Oakfield Convenience Store (OCS) operates with a cost structure heavily skewed towards fixed costs, boasting a higher contribution margin ratio of 0.67. This implies that for every dollar of sales, 67 cents are allocated to fixed costs and profit. OCS has a substantial fixed cost of $584,640 per year.Both businesses report annual sales of $1,218,000.**Questions:**a. Compare the two companies’ cost structures.b. Suppose both companies experience a 10 percent increase in sales volume. By how much would each company’s profits increase?**Instructions:**Complete this question by entering your answers in the tabs provided.**Data Comparison Table:**| | Dennis's Retail Mart's | Oakfield Convenience Store ||-----------------------------|-------------------------------|-----------------------------|| | `Amount` | `Percentage` | `Amount` | `Percentage` || **Sales** | `____` | `____`% | `____` | `____`% || **Variable Cost** | `____` | `____`% | `____` | `____`% || **Contribution Margin** | `____` | `____`% | `____` | `____`% || **Fixed Costs** | `109,620` | `____`% | `584,640` | `____`% || **Operating Profit** | `____` | `____`% | `____` | `____`% |### Analysis:To analyze and compare the two companies’ cost structures:1. Calculate the sales, variable cost, contribution margin, and operating profit for both companies.2. Assess the impact of a 10 percent increase in sales volume on each company’s profits.**Tip:**- Contribution margin ratio affects how much of the sales revenue is available to cover fixed costs and contribute to profit. ### Cost Structure Comparison of Dennis's Retail Mart and Oakfield Convenience Store**Educational Objective:**To understand and compare the cost structures of two different companies and evaluate the impact of a sales volume increase on their profits.#### OverviewThe cost structure of Dennis's Retail Mart is dominated by variable costs with a contribution margin ratio of 0.33 and fixed costs of $109,620. For every dollar of sales, 33 cents contribute to fixed costs and profit.On the other hand, Oakfield Convenience Store has a cost structure dominated by fixed costs. It has a higher contribution margin ratio of 0.67 and fixed costs amounting to $584,640. For every dollar of sales, 67 cents contribute to fixed costs and profit.Both companies reported sales of $1,218,000 for the year.#### Required Analysis**a. Compare the two companies' cost structures:**- **Dennis's Retail Mart:** - Contribution Margin Ratio: 0.33 - Fixed Costs: $109,620- **Oakfield Convenience Store:** - Contribution Margin Ratio: 0.67 - Fixed Costs: $584,640The key differences are that Dennis's Retail Mart has a higher variable cost component (as inferred from the lower contribution margin ratio), whereas Oakfield Convenience Store has higher fixed costs but a higher contribution margin per dollar of sales.**b. Impact of a 10% Increase in Sales Volume:**- The task is to calculate how a 10 percent increase in sales volume affects the profits of each company.**Suppose that both companies experience a 10 percent increase in sales volume. By how much would each company's profits increase?****Required A:**Dennis's Retail Mart's profits increase by: __________________ **Required B:**Oakfield Convenience Store's profits increase by: __________________ #### Detailed Analysis of Graphs or DiagramsThere are no graphs or diagrams provided in this context. The analysis primarily involves calculating the effect of sales increase on profits using the provided numerical data.#### Calculation Process1. **Determine the original and new sales volume for both companies:** - **Original Sales:** $1,218,000 - **New Sales (10% Increase):** $1,218,000 * 1.10 = $1,339,8002. **Calculate the increase in sales:** - Increase in Sales: $1,

The contribution margin is the amount of money earned by the entity after deducting the variable…

Answered: The cost structure of Dennis's Retail…

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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