FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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The Greenback Store’s cost structure is dominated by variable costs with a contribution margin ratio of 0.45 and fixed costs of $113,400. Every dollar of sales contributes 45 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 $270,900. Every dollar of sales contributes 70 cents toward fixed costs and profit. Both companies have sales of $630,000 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?
A. Compare the two companies’ cost structures.
Greenback's Store One-Mart
| Amount | Percentage | Amount | Percentage | |||
| Sales | % | |||||
| Variable Cost | % | |||||
| Contribution margin | % | |||||
| Fixed Costs | % | |||||
| Operating Profit | % |
B. Suppose that both companies experience a 15 percent increase in sales volume. By how much would each company’s profits increase?
| Greenback's store profits increase by | |
| One Mart's profit increase by |
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