Wharton Mens Clothings revenues and cost data for 2012 are as follows: Mr. Wharton, the owner of

Wharton Men’s Clothing’s revenues and cost data for 2012 are as follows:

Mr. Wharton, the owner of the store, is unhappy with the operating results. An analysis of other operating costs reveals that it includes $ 25,000 variable costs, which vary with sales volume, and $ 10,000 fixed costs.
1. Compute the contribution margin of Wharton Men’s Clothing.
2. Compute the contribution margin percentage.
3. Mr. Wharton estimates that he can increase revenues by 25% by incurring additional advertising costs of $ 15,000. Calculate the impact of the additional advertising costs on operating income.
4. What other actions can Mr. Wharton take to improve operatingincome?

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$500,000 200,000 300,000 Revenues Cost of goods sold Gross margin Operating costs: Salaries fixed Sales commissions (11% of sales) Depreciation of equipment and fixtures Store rent ($5,000 per month) Other operating costs $190,000 55,000 14,000 60,000 35,000 354,000 $ (54,000) Operating income (loss)