Problem 3 WinterSports Company revenues and cost data for 2020 are presented in the...
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Accounting
Problem 3
WinterSports Company revenues and cost data for 2020 are presented in the following gross margin format:
Revenues
Cost of goods sold (all variable costs)
Gross Margin
Operating costs:
Salaries fixed
Sales commissions (20% of sales)
Depreciation of equipment
Store rent ($5,000 per month)
Other operating costs*
Operating income (loss)
$120,000
160,000
20,000
60,000
80,000
$800,000
320,000
480,000
440,000
$40,000
*An analysis of other operating costs reveals that it includes $64,000 variable costs, which vary with sales volume, and $16,000 fixed costs.
Required (show your work)
Compute (i) the (total) contribution margin and (ii) the contribution margin percentage.
Compute the sales revenue required to achieve an operating profit of $60,000.
Calculate operating leverage at the current ($800,000) level of sales revenue. Explain how you would use this measure of operating leverage.
The manager of WinterSports estimates that units sold (and hence revenues) will increase by 20% if additional advertising costs of $15,000 are incurred. Calculate the impact on operating income of incurring the additional advertising costs.
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