Kaiser Industries carries no inventories. Its product is manufactured only when
ID: 2502446 • Letter: K
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, 2014, Kaiser's break - even point was $1.34 million. On sales of $1.17 million, its income statement showed a gross profit of $168,000, direct materials cost of $401,000, and direct labor costs of $502,700. The contribution margin was $168,000, and variable manufacturing overhead was $49,600. Ignoring your answer to part (a), assume that fixed manufacturing overhead was $100,300 and the fixed selling and administrative expenses were $75,200. The marketing vice president feels that if the company increased its advertising, sales could be increased by 20%. What is the maximum increased advertising cost the company can incur and still report the same income as before the advertising expenditure?Explanation / Answer
WORKING NOTE:-
CONTRIBUTION RATIO = 168000/1170000 * 100
=14.39%
BREKEVEN POINT = FIXED COST/CONTRIBUTION RATIO
1340000 = FXED COST / 14.39%
FIXED COST = 192826
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