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Lurvey Mens Clothings revenues and cost data for 2017 are as follows: BE(Click the icon to view the data.) Mr. Lurvey, theData Table Revenues $ 500,000 200,000 Cost of goods sold (all variable costs) 300,000 $ 180,000 Gross margin Operating costs:

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Answer #1

(1)

variable costs = cost of goods sold + sales commission + variable portion of other operating costs

= $200000 + $65000 + $45000 = $310000

Contribution margin = revenue - variable costs

= $500000 - $310000

= $190000

(2)

contribution margin percentage = contribution margin/revenue

= $190000/$500000

= 38%

(3)

change in operating income = change in contribution margin - change in fixed costs

= {($500000 x 25%) x 38%} - $13000

= $47500 - $13000

= $34500

(4)

To improve operating income, Mr. Lurvey must find ways to:

  • Increase his Contribution Margin by decreasing Variable Cost
  • increase his Selling Price
  • Decrease Fixed costs
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