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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?

Why is the calculation to determine the target profit considered a variation of the breakeven calculation?

Use the following information to complete Short Exercises S20-16 and S20-17.

Wild Waters Swim Park sells individual and family tickets. With a ticket, each person receives a meal, three beverages, and unlimited use of the swimming pools. Wild Waters has the following ticket prices and variable costs for 2018:

Individual Family Sales price per ticket \( 50 \) 150 Variable cost per ticket 35 140

Wild Waters expects to sell one individual ticket for every four family tickets. Wild Waters’s total fixed costs are $27,500.

S20-16 Calculating breakeven point for two products

Using the Wild Waters Swim Park information presented, do the following tasks.

Requirements

1. Compute the weighted-average contribution margin per ticket.

2. Calculate the total number of tickets Wild Waters must sell to break even.

3. Calculate the number of individual tickets and the number of family tickets the company must sell to break even.

A furniture manufacturer specializes in wood tables. The tables sell for \(100 per unit and incur \)40 per unit in variable costs. The company has $6,000 in fixed costs per month.

6. Prepare a contribution margin income statement for one month if the company sells 200 tables.

7. What is the total contribution margin for the month when the company sells 200 tables?

8. What is the unit contribution margin?

9. What is the contribution margin ratio?

A chain of convenience stores has one manager per store who is paid a monthly salary. Relative to Store #36 located in Atlanta, Georgia, is the manager’s salary fixed or variable? Why?
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