Question: Spring Companys cost structure is dominated by variable costs with a contribution margin ratio of 0.25 and fixed costs of $115,500. Every dollar of sales

Spring Companys cost structure is dominated by variable costs with a contribution margin ratio of 0.25 and fixed costs of $115,500. 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 0.80 and fixed costs of $539,000. Every dollar of sales contributes 80 cents toward fixed costs and profit. Both companies have sales of $770,000 per month.

Required:

a. Compare the two companies cost structures.

	Spring	Company	Winter's	Company
	amount	percentage	amount	percentage
Sales
Variable cost
Contribution margin
Fixed costs
Operating profit

b. Suppose that both companies experience a 10 percent increase in sales volume. By how much would each companys profits increase?

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