Mr.

McCarthy,

the owner of the store, is unhappy with the operating results. An analysis of other operating costs reveals that it includes

$40,000

variable costs, which vary with sales volume, and

$10,000

(fixed) costs.

1.	Compute the contribution margin of McCarthy Men's Clothing.
2.	Compute the contribution margin percentage.
3.	Mr. McCarthy estimates that he can increase units sold, and hence revenues by 15% by incurring additional advertising costs of $12,000. Calculate the impact of the additional advertising costs on operating income.
4.	What other actions can Mr. McCarthy take to improve operating income?

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1.	Compute the contribution margin of McCarthy Men's Clothing.
2.	Compute the contribution margin percentage.
3.	Mr. McCarthy estimates that he can increase units sold, and hence revenues by 15% by incurring additional advertising costs of $12,000. Calculate the impact of the additional advertising costs on operating income.
4.	What other actions can Mr. McCarthy take to improve operating income?

Revenues		$500,000
Cost of goods sold (all variable costs)		225,000
Gross margin		275,000
Operating costs:
Salaries fixed	$130,000
Sales commissions (10% of sales)	50,000
Depreciation on equipment and fixtures	16,000
Store rent ($5,000 per month)	60,000
Other operating costs	50,000	306,000
Operating income (loss)		$(31,000)

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