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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
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. 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. 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
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