Foxx Company’s cost structure is dominated by variable costs with a contribution

Question

Foxx Company’s cost structure is dominated by variable costs with a contribution margin ratio of 0.30 and fixed costs of $95,400. Every dollar of sales contributes 30 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 0.80 and fixed costs of $307,400. Every dollar of sales contributes 80 cents toward fixed costs and profit. Both companies have sales of $530,000 per month.

Compare the two companies’ cost structures using the format shown below.

Foxx Company's profits increase by

Beyonce Inc's profits increase by

Foxx Company’s cost structure is dominated by variable costs with a contribution margin ratio of 0.30 and fixed costs of $95,400. Every dollar of sales contributes 30 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 0.80 and fixed costs of $307,400. Every dollar of sales contributes 80 cents toward fixed costs and profit. Both companies have sales of $530,000 per month.

(a)

Compare the two companies’ cost structures using the format shown below.

Explanation / Answer

Foxx Company's Profits increase by $ 15,900

Beyonce Inc's loss decrease by $ 15,900

Foxx Company Beyonce, Inc. Amount Percentage (%) Amount    Percentage (%) Sales 530000 100 530000 100 Variable Cost 371000 70 371000 70 Contribution Margin 159000 30 159000 30 Fixed Costs 95400 18 307400 58 Operating Profit 63600 12 -148400 -28

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