Kaiser Industries carries no inventories. Its product is manufactured only when a customer’s order is received. It is then shipped immediately after it is made. For its fiscal year ended October 31, 2014, Kaiser’s break even point was $1.3 million. On sales of $1.2 million, its income statement showed a gross profit of $180,000, direct materials cost of $400,000, and direct labor costs of $500,000. The contribution margin was $180,000, and variable manufacturing overhead was $50,000.
Instructions
(a) Calculate the following:
(1) Variable selling and administrative expenses.
(2) Fixed manufacturing overhead.
(3) Fixed selling and administrative expenses.
(b) Ignoring your answer to part (a), assume that fixed manufacturing overhead was $100,000 and the fixed selling and administrative expenses were $80,000. The marketing vice president feels that if the company increased its advertising, sales could be increased by 25%. What is the maximum increased advertising cost the company can incur and still report the same income as before the advertising expenditure?
(CGA adapted)
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