Contribution margin, decision making. Welch Men's Clothing's revenues and cost data for 2017 areas tollows:Revenues$600,000300,000300,000Cost of goods sold (all variable costs)Gross marginOperating costs:Salaries fixed$140,00072,000Sales commissions (12% of sales)Depreciation of equipment and fixturesStore rent ($3,500 per month)Other operating costsOperating income (loss)10,00042,000309,000$ (9,000)45,000Mr. Welch, the owner of the store, is unhappy with the operating results. An analysis of other operatingcosts reveals that it includes $30,000 variable costs, which vary with sales volume, and $15,000 (fixed) costs.

Question
Asked Feb 13, 2020
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Q. What other actions can Mr. Welch take to improve operating income?

Contribution margin, decision making. Welch Men's Clothing's revenues and cost data for 2017 are
as tollows:
Revenues
$600,000
300,000
300,000
Cost of goods sold (all variable costs)
Gross margin
Operating costs:
Salaries fixed
$140,000
72,000
Sales commissions (12% of sales)
Depreciation of equipment and fixtures
Store rent ($3,500 per month)
Other operating costs
Operating income (loss)
10,000
42,000
309,000
$ (9,000)
45,000
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.
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Contribution margin, decision making. Welch Men's Clothing's revenues and cost data for 2017 are as tollows: Revenues $600,000 300,000 300,000 Cost of goods sold (all variable costs) Gross margin Operating costs: Salaries fixed $140,000 72,000 Sales commissions (12% of sales) Depreciation of equipment and fixtures Store rent ($3,500 per month) Other operating costs Operating income (loss) 10,000 42,000 309,000 $ (9,000) 45,000 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.

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Expert Answer

Step 1

The operating income is the difference of selling price and the total costs which comprises of variable costs and the fixed cost.

Step 2

The operating income and the total costs are inversely proportionate to each other, thus to increase the operating income it is required to decrease either the variable cost and fixed cost or both.

Let’s suppose, if the cost of goods sold, $300,00...

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