Reference no: EM133116421

Question - The Greenback Store's cost structure is dominated by variable costs with a contribution margin ratio of 0.40 and fixed costs of $78,000. 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 0.80 and fixed costs of $338,000. Every dollar of sales contributes 80 cents toward fixed costs and profit. Both companies have sales of $650,000 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?