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3-22 Contribution margin, decision making. (LO 2) Welch Men's Clothing's revenues and cost data for 2021 are as follows: Revenues Cost of goods sold (all variable costs) Gross margin Operating costs: Salaries fixed Sales commissions (12% of sales) Depreciation of equipment and fixtures Store rent ($3,500 per month) Other operating costs Operating income (loss) $140,000 72,000 10,000 42,000 45,000 $600,000 300,000 300,000 309,000 $ (9,000) Mr. Welch, 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 1. Compute the contribution margin of Welch Men's Clothing. 2. Compute the contribution margin percentage. 3. Mr. Welch estimates that he can increase units sold, and hence revenues by 25%, by incurring additional advertising costs of $8,000. Calculate the impact of the additional advertising costs on operating income.

3-22 Contribution margin, decision making. (LO 2) Welch Men's Clothing's revenues and cost data for 2021 are as follows: Revenues Cost of goods sold (all variable costs) Gross margin Operating costs: Salaries fixed Sales commissions (12% of sales) Depreciation of equipment and fixtures Store rent ($3,500 per month) Other operating costs Operating income (loss) $140,000 72,000 10,000 42,000 45,000 $600,000 300,000 300,000 309,000 $ (9,000) Mr. Welch, 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 1. Compute the contribution margin of Welch Men's Clothing. 2. Compute the contribution margin percentage. 3. Mr. Welch estimates that he can increase units sold, and hence revenues by 25%, by incurring additional advertising costs of $8,000. Calculate the impact of the additional advertising costs on operating income.

FINANCIAL ACCOUNTING
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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3-22 Contribution margin, decision making. (LO 2) Welch Men's Clothing's revenues and cost data for 2021 are as follows: Revenues Cost of goods sold (all variable costs) Gross margin Operating costs: Salaries fixed Sales commissions (12% of sales) Depreciation of equipment and fixtures Store rent ($3,500 per month) Other operating costs Operating income (loss) $140,000 72,000 10,000 42,000 45,000 $600,000 300,000 300,000 309,000 $ (9,000) Mr. Welch, 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 1. Compute the contribution margin of Welch Men's Clothing. 2. Compute the contribution margin percentage. 3. Mr. Welch estimates that he can increase units sold, and hence revenues by 25%, by incurring additional advertising costs of $8,000. Calculate the impact of the additional advertising costs on operating income. 4. What other actions can Mr. Welch take to improve operating income?
Transcribed Image Text:3-22 Contribution margin, decision making. (LO 2) Welch Men's Clothing's revenues and cost data for 2021 are as follows: Revenues Cost of goods sold (all variable costs) Gross margin Operating costs: Salaries fixed Sales commissions (12% of sales) Depreciation of equipment and fixtures Store rent ($3,500 per month) Other operating costs Operating income (loss) $140,000 72,000 10,000 42,000 45,000 $600,000 300,000 300,000 309,000 $ (9,000) Mr. Welch, 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 1. Compute the contribution margin of Welch Men's Clothing. 2. Compute the contribution margin percentage. 3. Mr. Welch estimates that he can increase units sold, and hence revenues by 25%, by incurring additional advertising costs of $8,000. Calculate the impact of the additional advertising costs on operating income. 4. What other actions can Mr. Welch take to improve operating income?
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