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What is the maximum increased advertising cost

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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 $1.33 million. On sales of $1.19 million, its income statement showed a gross profit of $168,000, direct materials cost of $409,000, and direct labor costs of $507,000. The contribution margin was $168,000, and variable manufacturing overhead was $50,000.

(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 $102,000 and the fixed selling and administrative expenses were $81,000. The marketing vice president feels that if the company increased its advertising, sales could be increased by 19%. What is the maximum increased advertising cost the company can incur and still report the same income as before the advertising expenditure?

Reference no: EM132101475

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