Couzen’s Company’s cost structure is dominated by variable costs with a contribution margin ratio of .25 and fixed costs of $450,000. Every dollar of sales contributes 25 cents toward fixed costs and profit. The cost structure of a competitor, Jones & Family, is dominated by fixed costs with a higher contribution margin ratio of .75 and fixed costs of $2,325,000. Every dollar of sales contributes 75 cents toward fixed costs and profit. Both companies have sales of $3,750,000 annually.

Required

a. Compare the two companies’ cost structures using the format shown in Exhibit 3.5.

b. Suppose that both companies experience a 12 percent decrease in sales volume. By how much would each company’s profits decrease?