Question: The Dollar Stores cost structure is dominated by variable costs with a contribution margin ratio of .30 and fixed costs of $30,000. Every dollar of

The Dollar Store’s cost structure is dominated by variable costs with a ratio of .30 and fixed costs of $30,000. Every dollar of sales contributes 30 cents toward fixed costs and profit. The cost structure of a competitor, One-Mart, is dominated by fixed costs with a higher ratio of .80 and fixed costs of $280,000. Every dollar of sales contributes 80 cents toward fixed costs and profit. Both companies have sales of $500,000 for the month.

Required
a. Compare the two companies’ cost structures using the format shown in Exhibit 3.5.
b. Suppose that both companies experience a 15 percent increase in sales volume. By how much would each company’s profits increase?

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