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 $1.32 million. On sales of $1.17 million, its income statement showed a gross profit of $176,000, direct materials cost of $402,000, and direct labor costs of $505,000. The contribution margin was $176,000, and variable manufacturing overhead was $49,000.

b) Ignoring your answer to part (a), assume that fixed manufacturing overhead was $100,000 and the fixed selling and administrative expenses were $79,000. 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?

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Sep 13, 2020

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