Mr.Godfroy,the owner of the store, is unhappy with the operating results. An analysis of other operating costs reveals that it includes $45,000 variable costs, which vary with sales volume, and $20,000 (fixed) costs.1.Compute the contribution margin ofGodfroyMen's Clothing.2.Compute the contribution margin percentage.3.Mr.Godfroyestimates that he can increase units sold and, hence, revenues by20%by incurring additional advertising costs of$12,000.Calculate the impact of the additional advertising costs on operating income.4.What other actions can Mr.Godfroytake to improve operating income? RevenuesCost of goods sold (all variable costs)Gross marginOperating costs:Salaries fixedSales commissions (13% of sales)Depreciation on equipment and fixturesStore rent ($4,500 per month)Other operating costsOperating income (loss)$ 200,00065,0009,00054,00065,000$500,000225,000275,000393,000$ (118,000)

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Mr.Godfroy,the owner of the store, is unhappy with the operating results. An analysis of other operating costs reveals that it includes $45,000 variable costs, which vary with sales volume, and $20,000 (fixed) costs.

1.	Compute the contribution margin of Godfroy Men's Clothing.
2.	Compute the contribution margin percentage.
3.	Mr. Godfroy 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 on operating income.
4.	What other actions can Mr. Godfroy take to improve operating income?

Revenues
Cost of goods sold (all variable costs)
Gross margin
Operating costs:
Salaries fixed
Sales commissions (13% of sales)
Depreciation on equipment and fixtures
Store rent ($4,500 per month)
Other operating costs
Operating income (loss)
$ 200,000
65,000
9,000
54,000
65,000
$
500,000
225,000
275,000
393,000
$ (118,000)

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