The Greenback Store\'s cost structure is dominated by variable costs with a cont

Question

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 GREENBACK STORE ONE-MART Amount PercentageAmo unt Percentage Sales Variable cost Contribution margin Fixed costs Operating profit 630,000 100196 $ 630,000 1001% 346,500 283,500|| 45%) $ 441,000 113,400 189,000 30 701 % 43 18 270,900 b. Suppose that both companies experience a 15 percent increase in sales volume. By how much would each company's profits increase? Greenback Store's profits increase by One-Mart's profits increase by

Explanation / Answer

Requirement a GREEKBACK STORE ONE-MART Amount Percentage Amount Percentage Sales 630000 100 % 630000 100 % Variable cost 346500 55 % 189000 30 % Contribution Margin 283500 45 % 441000 70 % Fixed Costs 113400 18 % 270900 43 % Operating Profit 170100 27 % 170100 27 % Requirement b GREEKBACK STORE ONE-MART Amount Amount Sales 724,500 724,500 Contribution Margin 326,025 507,150 Fixed Costs 113,400 270,900 Operating Profit 212,625 236,250 170,100 170,100 Increase by 42,525 66,150 Greenback store's Profits increase by 42,525 One-Mart's Profits increase by 66,150

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