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The Greenback Store’s cost structure is dominated by variable costs with a contribution margin ratio of...

The Greenback Store’s cost structure is dominated by variable costs with a contribution margin ratio of 0.30 and fixed costs of $55,200. 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 0.80 and fixed costs of $285,200. Every dollar of sales contributes 80 cents toward fixed costs and profit. Both companies have sales of $460,000 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?

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