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 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?

Answer 1