The Greenback Store's cost structure is dominated by variable costs with a contribution margin ratio of 0.40 and fixed costs of $58,400. 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 $350,400. Every dollar of sales contributes 80 cents toward fixed costs and profit. Both companies have sales of $730,000 for the month.
Required:
a. Compare the two companies' cost structures.
b. Suppose that both companies experience a 20 percent increase in sales volume. By how much would each company's profits increase?