Q$1.$ McCarthy Men$$s Clothing$$s revenues and cost data for $2020$ are as follows:

Revenues $$500,000$

Cost of goods sold $250,000$

Gross margin $250,000$

Operating costs:

Salaries fixed $$160,000$

Sales commissions $(11\%$ of sales$)55,000$

Depreciation of equipment and fixtures $15,000$

Store rent $($$$4,000$ per month$)48,000$

Other operating costs $40,000318,000$

Operating income $($loss$)($$$68,000)$

Mr$.$ McCarthy, the owner of the store, is unhappy with the operating results. An

analysis of other operating costs reveals that it includes $$35,000$ variable costs, which

vary with sales volume, and $$5,000($fixed$)$ 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

$20\%$ 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?