McCarthy Mens Clothings revenues and cost data for 2014 are as follows: Mr. McCarthy, the owner of

McCarthy Men’s Clothing’s revenues and cost data for 2014 are as follows:

Mr. McCarthy, the owner of the store, is unhappy with the operating results. An analysis of other operat-ing costs reveals that it includes $ 35,000 variable costs, which vary with sales volume, and $ 5,000 (fixed) costs.

Required
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 on­operating income.
4. What other actions can Mr. McCarthy take to improve operatingincome?

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Revenues $500,000 250,000 250,000 Cost of goods sold Gross margin Operating costs: Salaries fixed Sales commissions ( 1 1 % of sales) Depreciation of equipment and fixtures Store rent (S4,000 per month) $160,000 55,000 15,000 48,000 40,000 318000 Other operating costs Operating income (loss) $ (68,000)