The Greenback Store’s cost structure is dominated by variable costs with a contribution margin ratio of 0.30 and fixed costs of $38,500. Every dollar of sales contributes 30 cents toward fixed costs and profit. The cost structure of a competitor, One-Mart, is dominated by fixed costs with a higher contribution margin ratio of 0.70 and fixed costs of $258,500. Every dollar of sales contributes 70 cents toward fixed costs and profit. Both companies have sales of $550,000 for the month. Required: a. Compare the two companies’ cost structures. b. Suppose that both companies experience a 20 percent increase in sales volume. By how much would each company’s profits increase?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
The Greenback Store’s cost structure is dominated by variable costs with a contribution margin ratio of 0.30 and fixed costs of $38,500. Every dollar of sales contributes 30 cents toward fixed costs and profit. The cost structure of a competitor, One-Mart, is dominated by fixed costs with a higher contribution margin ratio of 0.70 and fixed costs of $258,500. Every dollar of sales contributes 70 cents toward fixed costs and profit. Both companies have sales of $550,000 for the month.
Required:
a. Compare the two companies’ cost structures.
b. Suppose that both companies experience a 20 percent increase in sales volume. By how much would each company’s profits increase?
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