# Analysis of Cost Structure Foxx Company’s cost structure is …

Analysis of Cost Structure Foxx Company’s cost structure is …

Analysis of Cost Structure Foxx Company’s cost structure is dominated by variable costs with a contribution margin ratio of .25 and fixed costs of \$100,000. Every dollar of sales contributes 25 cents toward fixed costs and profit t. The cost structure of a competitor, Beyonce, Inc., is dominated by fixed costs with a higher contribution margin ratio of .80 and fixed costs of \$400,000. Every dollar of sales contributes 80 cents toward fixed costs and profit t. Both companies have sales of \$600,000 per month.
Required
a. Compare the two companies’ cost structures using the format shown in Exhibit 3.5.
b. Suppose that both companies experience a 20 percent increase in sales volume. By how much would each company’s profits increase?
Exhibit 3.5.
Lo-Lev Company
Hi-Lev Company
(1,000,000 units)
Percentage
(1,000,000 units)
Percentage
Sales
\$1,000,000
100
\$1,000,000
100
Variable costs
750,000
75
250,000
25
Contribution margin
\$ 250,000
25
\$ 750,000
75
Fixed costs
50,000
5
550,000
55
Operating profit t
\$200,000
20
\$ 200,000
20
Break-even point
200,000 units
733,334 units
Contribution margin per
unit \$0.25
\$0.75

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