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Mr.Lurvey, 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,
Mr.Lurvey, 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 $5,000 (fixed) cost.
1. Compute the contribution margin of Lurvey Mens Clothing
2. Compute the contribution margin percentage.
3. Mr. Lurvey estimates that he can increase units sold, and hence revenues by 15% by incurring additional advertising costs of $8,000. Calculate the impact of the additional advertising costs on operating income.
4. What other actions can Mr.Lurvey take to improve operating income?
Revenues $500,000
COGS $225,000
Gross margin $275,000
Salaries fixed $180,000
Sales commissions (8% of sales) $40,000
Depreciation on equipment $16,000
Store rent ($4,500 per month) $54,000
Other operating costs $30,000
Operating income ($45,000)
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