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The Greenback Stores cost structure is dominated by variable costs with a contribution margin ratio...

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Accounting

The Greenback Stores cost structure is dominated by variable costs with a contribution margin ratio of 0.40 and fixed costs of $100,800. Every dollar of sales contributes 40 cents toward fixed costs and profit. The cost structure of a competitor, One-Mart, is dominated by fixed costs with a higher contribution margin ratio of 0.80 and fixed costs of $268,800. Every dollar of sales contributes 80 cents toward fixed costs and profit. Both companies have sales of $420,000 for the month.

Required:

a. Compare the two companies cost structures.

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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