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Revenues $ 500,000 250,000 250,000 $ Cost of goods sold (all variable costs) Gross margin Operating costs: Salaries fixed SalNeylon Mens Clothings revenues and cost data for 2017 are as follows: Click the icon to view the data.) Mr. Neylon, the ownRequirement 3. Mr. Neylon estimates that he can increase units sold, and hence revenues by 15% by incurring additional advert

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Answer #1

Solution 1:

Contribution margin = Revenue - Variable costs

= $500,000 - ($250,000 + $45,000 + $40,000) = $165,000

Solution 2:

Contribution margin ratio = Contribution margin / Sales = $165,000 / $500,000 = 33%

Solution 3:

Increase in operating income = Increase in contribution margin - Additional advertising costs

= ($500,000*15%*33%) - $11,000 = $13,750

Solution 4:

To improve operating income, Mr. Nylon must find ways to increase revenues and decrease costs.

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