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9.) Both Company A and Company B have identical cost structures. (i.e., their fixed costs and...

9.) Both Company A and Company B have identical cost structures. (i.e., their fixed costs and variable costs are identical). Company A has a 6% increase in revenue, all driven by price. Company B has a 6% increase in revenue, all driven by volume.

Which company will experience the biggest increase in margins? why?
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Answer #1

Company A will have higher margin since the variable cost is directly related to volume. Now In company A the volume will remain same so do the variable cost.

But in Company B the variable cost will also increase with increase in volume.

In both the cases the increase in revenue is same. As can be seen in example :

Assumption:Revenue is lets say $1000 in both the cases and it increase to $1060 (6% Increase)

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