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, 2020, 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 was $144,000, 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?
