The Greenback Store’s cost structure is dominated by variable costs with a contribution margin ratio of 0.40 and fixed costs of $100,800. Every dollar of sales contributes 40 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 $244,800. Every dollar of sales contributes 70 cents toward fixed costs and profit. Both companies have sales of $480,000 for the month.
Required:
a. Compare the two companies’ cost structures.
b. Suppose that both companies experience a 10 percent increase in sales volume. By how much would each company’s profits increase?
Homework Answers
Contribution = Sales - Variable cost
Operating profit = Sales - Variable cost - Fixed cost
Contribution margin = Contribution / Sales
Contribution margin for both
Greenback stores 40%
One mart 70%
Ans a,
Present Cost structure as follows,
Ans b, 10% increase in sales i.e 480000 *110% = 528000
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RETE The Greenback Store's cost structure is dominated by variable costs with a contribution margin ratio...
RETE The Greenback Store's cost structure is dominated by variable costs with a contribution margin ratio of 0.30 and fixed costs of $55,200. 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 0.80 and fixed costs of $285,200. Every dollar of sales contributes 80 cents toward fixed costs and profit. Both companies have sales of $460,000 for the...
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RETE The Greenback Store's cost structure is dominated by variable costs with a contribution margin ratio of 0.30 and fixed costs of $55,200. 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 0.80 and fixed costs of $285,200. Every dollar of sales contributes 80 cents toward fixed costs and profit. Both companies have sales of $460,000 for the...
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