Foxx Companys cost structure is dominated by variable costs with a contribution margin ratio of...
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Foxx Companys cost structure is dominated by variable costs with a contribution margin ratio of 0.45 and fixed costs of $107,200. Every dollar of sales contributes 45 cents toward fixed costs and profit. The cost structure of a competitor, Beyonce, Inc., is dominated by fixed costs with a higher contribution margin ratio of 0.70 and fixed costs of $274,700. Every dollar of sales contributes 70 cents toward fixed costs and profit. Both companies have sales of $670,000 per month. Required:
(a) Compare the two companies cost structures using the format shown below.
Foxx Company Beyonce Inc
Amount Percentage Amount Percentage
Sales
Variable Cost
Contribution Margin
Fixed Costs
Operating profit
(b)
Suppose that both companies experience a 20 percent increase in sales volume. By how much would each companys profits increase?
Foxx Company's profits increase by
Beyonce Inc's profits increase by
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