Question: EX 3-35 Spring Companys cost structure is dominated by variable costs with a contribution margin ratio of 0.30 and fixed costs of $102,000. Every dollar

EX 3-35

Spring Companys cost structure is dominated by variable costs with a contribution margin ratio of 0.30 and fixed costs of $102,000. 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 0.70 and fixed costs of $306,000. Every dollar of sales contributes 70 cents toward fixed costs and profit. Both companies have sales of $510,000 per 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 companys profits increase?

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