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 companys profits increase?

Spring Companys cost structure is dominated by variable costs with a contribution margin ratio of 0.30 and fixed costs of $50,000. Every dollar of sales contributes 30 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 0.80 and fixed costs of $300,000. Every dollar of sales contributes 80 cents toward fixed costs and profit. Both companies have sales of $500,000 per month.