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Chapter 20: Q24RQ (page 1120)

What is a company’s cost structure? How can cost structure affect a company’s profits?

Short Answer

Expert verified

The proportion of fixed costs to variable costs is known as the company’s cost structure.

Step by step solution

01

Company’s cost structure

The proportion of fixed costs to variable costs is known as the company’s cost structure. It is important to design a cost structure because small changes in costs could have a substantial impact on profits.

02

How can cost structure affect a company’s profit? 

Companies having higher fixed costs are at greater risk, but at the same time they have the opportunity for greater profits.

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Most popular questions from this chapter

What is the margin of safety? What are the three ways it can be expressed?

A chain of convenience stores has one manager per store who is paid a monthly salary. Relative to the number of stores, is the manager’s salary fixed or variable? Why?

What are the three ways contribution margin can be ex

What are the three approaches to calculating the sales required to achieve the breakeven point? Give the formula for each one.

Question: Use the following information to complete Short Exercises S20-10 through S20-15.

Funday Park competes with Cool World by providing a variety of rides. Funday Park sells tickets at \(70 per person as a one-day entrance fee. Variable costs are \)42 per person, and fixed costs are $170,800 per month.

S20-10 Computing contribution margin per unit, breakeven point in sales units

Compute the contribution margin per unit and the number of tickets Funday Park must sell to break even. Perform a numerical proof to show that your answer is correct.
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