Question
Mr. Wharton, the owner of the store, is unhappy with the operating results. an analysis of other operating costs reveals that it includes $40,000 variable
Mr. Wharton, 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 $15,000 (fixed) costs.
Revenues | $500,000 | |
Cost of goods sold (all variable costs) | 250,000 | |
Gross margin | 250,000 | |
Operating costs: | ||
Salaries fixed | $160,000 | |
Sales commissions (11% of sales) | 55,000 | |
Depreciation on equipment and fixtures | 20,000 | |
Store rent ($5,000 per month) | 60,000 | |
Other operating costs | 55,000 | 350,000 |
Operating income (loss) | $(100,000) |
Requirement 1
Determine the formula to calculate the contribution margin, then enter the amounts in the formula to compute the contribution margin of Wharton Mens Clothing
____ - ______ = Contribution Margin
Requirement 2
Compute the contribution margin percentage.
Requirement 3
Mr. Whartron estimates that he can increase units sold, and hence revenues by 20% by incurring additional advertising costs of $15,000. calculate the impact of the additional advertising costs on operating income
Requirement 4
What other actions can Mr. Wharton take to improve operating income?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started