Reference no: EM132969925
Question - Johnson Men's Clothing revenues and cost data for 2020 are as follows:
Revenues $600,000.00
Cost of goods sold $300,000.00
Gross margin $300,000.00
Operating cost:
Salaries (Fixed) $170,000.00
Sales commission (10% of Sales) $60,000.00
Depreciation of equipment and fixtures $20,000.00
Store rent (54,500 per month) $54,000.00
Other operating Costs $45,000.00 $349,000.00
Operating income (loss) $(49,000.00)
Mr. Johnson, the owner of the store, is unhappy with the operating results. An analysis of other operating costs reveals that it includes $30,000 variable costs, which vary with sales volume, and $15,000 (fixed) costs.
Required -
a. Compute the contribution margin of Johnson Men's Clothing. Also compute the contribution margin percentage (Hint: Assume all Costs of Goods Sold are variable costs).
b. Mr. Johnson estimates that he can increase revenues by 55% by incurring additional advertising costs of $7,500. Calculate the impact of the additional advertising costs on operating income.
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