The Greenback Store's cost structure is dominated by variable costs with a contribution margin ratio of 0.25 and fixed costs of $40,000. Every dollar of sales contributes 25 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 0.75 and fixed costs of $440,000. Every dollar of sales contributes 75 cents toward fixed costs and profit. Both companies have sales of $800,000 for the month. Required: a. Compare the two companies' cost structures. b. Suppose that both companies experience a 15 percent increase in sales volume. By how much would each company's profits increase?
The Greenback Store's cost structure is dominated by variable costs with a contribution margin ratio of 0.25 and fixed costs of $40,000. Every dollar of sales contributes 25 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 0.75 and fixed costs of $440,000. Every dollar of sales contributes 75 cents toward fixed costs and profit. Both companies have sales of $800,000 for the month. Required: a. Compare the two companies' cost structures. b. Suppose that both companies experience a 15 percent increase in sales volume. By how much would each company's profits increase?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:The Greenback Store's cost structure is dominated by variable costs with a contribution margin ratio of 0.25 and fixed costs of
$40,000. Every dollar of sales contributes 25 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 0.75 and fixed costs of $440,000. Every dollar of sales contributes
75 cents toward fixed costs and profit. Both companies have sales of $800,000 for the month.
Required:
a. Compare the two companies' cost structures.
b. Suppose that both companies experience a 15 percent increase in sales volume. By how much would each company's profits
increase?
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