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Spring Company’s cost structure is dominated by variable costs with a contribution margin ratio of 0.25...

Spring Company’s cost structure is dominated by variable costs with a contribution margin ratio of 0.25 and fixed costs of $57,200. Every dollar of sales contributes 25 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 0.70 and fixed costs of $255,200. Every dollar of sales contributes 70 cents toward fixed costs and profit. Both companies have sales of $440,000 per month.

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?

Compare the two companies’ cost structures.

SPRING COMPANY WINTERS COMPANY
Amount Percentage Amount Percentage
Sales % %
Variable cost
Contribution margin % %
Fixed costs
Operating profit % %

Suppose that both companies experience a 20 percent increase in sales volume. By how much would each company’s profits increase?
Spring Company’s profits increase by
Winter Company's profits increase by
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