Question

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, 2017, 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.

(a) Calculate the following: (Round intermediate calculations to 2 decimal places e.g. 2.25 and final answers to 0 decimal places, e.g. 1,225.)

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?

Maximum increased advertising expenditure $

Answer 1