Contribution margin, decision making. Brandon Harris has a small bakery business called Super Bakery. Revenues and cost data of Super Bakery for the year 2016 are as follows: Sales revenues $475,000 Cost of goods sold (40% of sales revenues) 190,000 Gross margin 285,000 Operating costs: Salaries fixed $175,000 Sales commissions (15% of sales) 71,250 Depreciation of equipment and fixtures 22,000 Insurance for the year 5,000 Store rent ($5,000 per month) 60,000 Other operating costs 50,000 383,250 Operating income (loss) $(98,250)

An analysis of other operating costs reveals that 80% of it varies with sales volume, and remaining 20% does not vary with sales volume rather remains same irrespective of sales volume. Required: 1. Compute the contribution margin of Super Bakery. 2. Compute the contribution margin percentage. 3. Mr. Harris estimates that if he can spend an additional $15,000 towards sales promotion, sales revenues may increase by 30%. What should Mr. Harris decision be? 4. What other actions can he take to improve the operating income?