Question: Spring Companys cost structure is dominated by variable costs with a contribution margin ratio of 0.20 and fixed costs of $60,000. Every dollar of sales

Spring Companys cost structure is dominated by variable costs with a contribution margin ratio of 0.20 and fixed costs of $60,000. Every dollar of sales contributes 20 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 $310,000. Every dollar of sales contributes 70 cents toward fixed costs and profit. Both companies have sales of $500,000 per month.

Required:

a. Compare the two companies cost structures.

b. Suppose that both companies experience a 8 percent increase in sales volume. By how much would each companys profits increase?

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