Couzen's Company's cost structure is dominated by variable costs with a contribution margin ratio of 0.26 and fixed costs of $454,500. Every dollar of sales contributes 26 cents toward fixed costs and profit. The cost structure of a competitor, Jones & Family, is dominated by fixed costs with a higher contribution margin ratio of 0.76 and fixed costs of $2,348,250. Every dollar of sales contributes 76 cents toward fixed costs and profit. Both companies have sales of $3,787,500 annually. Required: a. Compare the two companies' cost structures. b. Suppose that both companies experience a 12 percent decrease in sales volume. By how much would each company's profits decrease?

Couzen's Company's cost structure is dominated by variable costs with a contribution margin ratio of 0.26 and fixed costs of $454,500. Every dollar of sales contributes 26 cents toward fixed costs and profit. The cost structure of a competitor, Jones & Family, is dominated by fixed costs with a higher contribution margin ratio of 0.76 and fixed costs of $2,348,250. Every dollar of sales contributes 76 cents toward fixed costs and profit. Both companies have sales of $3,787,500 annually. Required: a. Compare the two companies' cost structures. b. Suppose that both companies experience a 12 percent decrease in sales volume. By how much would each company's profits decrease?

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter8: Tactical Decision-making And Relevant Analysis

Section: Chapter Questions

Problem 20BEA

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