COST ACCOUNTING W/CONNECT
6th Edition
ISBN: 9781264022021
Author: LANEN
Publisher: MCG
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Textbook Question
Chapter 3, Problem 35E
Analysis of Cost Structure
Spring Company’s cost structure is dominated by variable costs with a contribution margin ratio of .20 and fixed costs of $60,000. Every dollar of sales contributes 20 cents toward fixed costs and profit. The cost structure of a competitor, Winters Company, is dominated by fixed costs with a higher contribution margin ratio of .70 and fixed costs of $310,000. Every dollar of sales contributes 70 cents toward fixed costs and profit. Both companies have sales of $500,000 per month.
Required
- a. Compare the two companies’ cost structures using the format shown in Exhibit 3.5.
- b. Suppose that both companies experience an 8 percent increase in sales volume. By how much would each company’s profits increase?
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Spring Company’s cost structure is dominated by variable costs with a contribution margin ratio of 0.30 and fixed costs of $50,000. Every dollar of sales contributes 30 cents toward fixed costs and profit. The cost structure of a competitor, Winters Company, is dominated by fixed costs with a higher contribution margin ratio of 0.80 and fixed costs of $300,000. Every dollar of sales contributes 80 cents toward fixed costs and profit. Both companies have sales of $500,000 per month.
Required:
a. Compare the two companies’ cost structures.
b. Suppose that both companies experience a 20 percent increase in sales volume. By how much would each company’s profits increase?
.Analysis of Cost Structure Spring Company's cost structure is dominated by variable costs with a contribution margin ratio of .20 and fixed costs of $60,000. Every dollar of sales contributes 20 cents toward fixed costs and profit. The cost structure of a competitor, Winters Company, is dominated by fixed costs with a higher contribution margin ratio of .70 and fixed costs of S310,000. Every dollar of sales contributes 70 cents toward fixed costs and profit. Both companies have sales of 5500,000 per month. -
Required 1-Compare the two companies' cost structures using the format shown in Exhibit 3.5
2-Suppose that both companies experience an 8 percent increase in sales volume By how much would each company's profits increase?
Couzen's Company's cost structure is dominated by variable costs with a contribution margin ratio of 0.28 and fixed costs of $517,500.
Every dollar of sales contributes 28 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 0.78 and fixed costs of $2,673,750. Every dollar of sales contributes
78 cents toward fixed costs and profit. Both companies have sales of $4,312,500 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?
Complete this question by entering your answers in the tabs below.
Required A Required B
Compare the two companies' cost structures.
Couzen's Company
Sales
Variable cost
Contribution margin
Fixed costs
Operating profit
Amount
Percentage
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Chapter 3 Solutions
COST ACCOUNTING W/CONNECT
Ch. 3 - Write out the profit equation and describe each...Ch. 3 - What are the components of total costs in the...Ch. 3 - How does the total contribution margin differ from...Ch. 3 - Compare cost-volume-profit (CVP) analysis with...Ch. 3 - Fixed costs are often defined as fixed over the...Ch. 3 - Prob. 6RQCh. 3 - What is the margin of safety? Why is this...Ch. 3 - Prob. 8RQCh. 3 - Write out the equation for the target volume (in...Ch. 3 - How do income taxes affect the break-even...
Ch. 3 - Why is it common to assume a fixed sales mix...Ch. 3 - What are some important assumptions commonly made...Ch. 3 - Prob. 13CADQCh. 3 - Prob. 14CADQCh. 3 - The typical cost-volume-profit graph assumes that...Ch. 3 - The assumptions of CVP analysis are so simplistic...Ch. 3 - Prob. 17CADQCh. 3 - Consider a class in a business school where volume...Ch. 3 - Prob. 19CADQCh. 3 - Prob. 20CADQCh. 3 - Consider the Business Application,...Ch. 3 - Consider the Business Application,...Ch. 3 - Prob. 23CADQCh. 3 - Profit Equation Components Identify each of the...Ch. 3 - Profit Equation Components Identify the letter of...Ch. 3 - Basic Decision Analysis Using CVP Anus Amusement...Ch. 3 - Basic CVP Analysis The manager of Dukeys Shoe...Ch. 3 - CVP AnalysisEthical Issues Mark Ting desperately...Ch. 3 - Basic Decision Analysis Using CVP Derby Phones is...Ch. 3 - Prob. 30ECh. 3 - Basic Decision Analysis Using CVP Warner Clothing...Ch. 3 - Basic Decision Analysis Using CVP Refer to the...Ch. 3 - Prob. 33ECh. 3 - Prob. 34ECh. 3 - Analysis of Cost Structure Spring Companys cost...Ch. 3 - CVP and Margin of Safety Bristol Car Service...Ch. 3 - CVP and Margin of Safety Caseys Cases sells cell...Ch. 3 - Prob. 38ECh. 3 - Prob. 39ECh. 3 - Refer to the data for Derby Phones in Exercise...Ch. 3 - Refer to the data for Warner Clothing in Exercise...Ch. 3 - CVP with Income Taxes Hunter Sons sells a single...Ch. 3 - CVP with Income Taxes Hammerhead Charters runs...Ch. 3 - Prob. 44ECh. 3 - Prob. 45ECh. 3 - Prob. 46ECh. 3 - Prob. 47ECh. 3 - CVP Analysis and Price Changes Argentina Partners...Ch. 3 - Prob. 49PCh. 3 - CVP AnalysisMissing Data Breed Products has...Ch. 3 - Prob. 51PCh. 3 - Prob. 52PCh. 3 - CVP AnalysisSensitivity Analysis (spreadsheet...Ch. 3 - Prob. 54PCh. 3 - Prob. 55PCh. 3 - Extensions of the CVP ModelSemifixed (Step) Costs...Ch. 3 - Prob. 57PCh. 3 - Extensions of the CVP ModelTaxes Odd Wallow Drinks...Ch. 3 - Prob. 59PCh. 3 - Prob. 60PCh. 3 - Extensions of the CVP ModelTaxes Toys 4 Us sells...Ch. 3 - Extensions of the CVP AnalysisTaxes Eagle Company...Ch. 3 - Extensions of the CVP ModelMultiple Products...Ch. 3 - Extensions of the CVP ModelMultiple Products...Ch. 3 - Prob. 65PCh. 3 - Prob. 66PCh. 3 - Prob. 67PCh. 3 - Prob. 68PCh. 3 - Extensions of the CVP ModelMultiple Products and...Ch. 3 - Extensions of the CVP ModelTaxes With Graduated...Ch. 3 - Prob. 71PCh. 3 - Financial Modeling Three entrepreneurs were...
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