Contribution margin, decision making. Wharton Mens Clothings revenues and cost data for 2012 are as follows: Revenues $500,000 Cost of goods sold 200,000 Gross margin = 300,000 Operating costs: Salaries fixed $190,000 Sales commissions (11% of sales) 55,000 Depreciation of equipment and fixtures 14,000 Store rent ($5,000 per month) 60,000 Other operating costs 35,000 354,000 Operating income (loss) = $ (54,000)

Mr. Wharton, the owner of the store, is unhappy with the operating results. An analysis of other operating costs reveals that it includes $25,000 variable costs, which vary with sales volume, and $10,000 fixed costs.

1. Compute the contribution margin of Wharton Mens Clothing. 2. Compute the contribution margin percentage. 3. Mr. Wharton estimates that he can increase revenues by 25% by incurring additional advertising costs of $15,000. Calculate the impact of the additional advertising costs on operating income. 4. What other actions can Mr. Wharton take to improve operating income?