Comfort Wear (CW) is a retail shoe store located in a busy shopping complex in downtown Miami. CW is considering selling a new line of shoes starting next month. It will need to hire two additional sales staff for an additional fixed monthly salary of $1,500 per person. CW has enough retail space in its store to offer this line, and so no additional store space will be required. CW expects that the new line will increase its monthly sales revenues by $25,000 and that the cost of purchasing the shoes will equal $12,500. The following data reflects CW's revenues and costs in a typical month.
Revenues .......................................$125,000
Sales staff fixed salaries ........................12,000
Supervisor salary ..................................2,500
Monthly store rental.............................. 3,000
Utilities .............................................2,500
Supplies .............................................5,000
Promotional items .................................2,500
Sales commissions............................... 10,000
Advertising........................................ 2,500
Required:
Using the account classification method, estimate the expected increase in monthly costs if CW decides to sell the new shoe line. Be sure to consider the nature of the cost in your answer. Compute the expected contribution margin from the new show line.