Contribution margin, decision making Schmidt Men?s Clothing?s revenues and cost data for 2009 are:

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Mr. Schmidt, 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 Schmidt Men?s Clothing.

2. Compute the Contribution margin percentage.

3. Mr. Schmidt estimates that he can increase revenues by 20% by incurring additional advertising costs of $10,000. Calculate the impact of the additional advertising costs on operating income

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Revenues $500,000 Cost of goods sold (40% of sales) 200,000 Gross margin Operating costs: 300,000 Salaries fixed $150,000 Sales commissions (10% of sales) Depreciation of equipment and fixtures Store rent ($4,000 per month) Other operating costs Operating income (loss) 50,000 12,000 48,000 50,000 310,000 S(10,000)