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
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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