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Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher
Edition 2ISBN: 978-0077274993Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher
Edition 2ISBN: 978-0077274993 Exercise 11
Analysis of Cost Structure
The Dollar Store's cost structure is dominated by variable costs with a contribution margin ratio of.30 and fixed costs of $30,000. Every dollar of sales contributes 30 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.80 and fixed costs of $280,000. Every dollar of sales contributes 80 cents toward fixed costs and profit. Both companies have sales of $500,000 for the month.
Required
a. Compare the two companies' cost structures using the format shown in Exhibit 3.5.
b. Suppose that both companies experience a 15 percent increase in sales. By how much would each company's profits increase
The Dollar Store's cost structure is dominated by variable costs with a contribution margin ratio of.30 and fixed costs of $30,000. Every dollar of sales contributes 30 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.80 and fixed costs of $280,000. Every dollar of sales contributes 80 cents toward fixed costs and profit. Both companies have sales of $500,000 for the month.
Required
a. Compare the two companies' cost structures using the format shown in Exhibit 3.5.
b. Suppose that both companies experience a 15 percent increase in sales. By how much would each company's profits increase
Explanation
Verified
Verified
a.
Comparison of cost structures of two ...
Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher
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