Problem 18-6A Your answer is partially correct. Try again Kaiser Industries carr
ID: 2550441 • Letter: P
Question
Problem 18-6A Your answer is partially correct. Try again Kaiser Industries carries no inventories. Its product is manufactured only when a customer's order is received. It is then shippe immediately after it is made. For its fiscal year ended October 31, 2017, Kaiser's break-even point was $1.3 million. On sales o $1.2 million, its income statement showed a gross profit of $180,000, direct materials cost of $400,000, and direct labor costs $500,000. The contribution margin was $180,00o, 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 too decimal places, e.g. 1,225 1. Variable selling and administrative expenses. 2. Fixed manufacturing overhead. 3. Fixed selling and administrative expenses. 70000 125000 (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 125000 Click if you would like to Show Work for this question: Open Show WorkExplanation / Answer
Sales 1,200,000 Contribution 180,000 Variable cost 1,020,000 Variable selling and admin 70,000 (1020000-400000-500000-50000) Gross Profit 180,000 COGS 1,020,000 Fixed manufacturing OH 70,000 (1020,000-950,000) CM ratio: Contribution/ Sales *100 =180,000/*1200,000 *100 =15% Break even Point: $ 1300,000 Break even in $ = Fixed cost / Cm ratio = 1300,000*15% = 195,000 Fixed Selling OH = 195,000 -70,000 = $125,000 Now Revised Ssales: 1200,000+25% = 1500,000 CM ratio = 1500,000*15% = $225,000 Increased in contribution = 225,000 -180,000 = $ 45,000 Therefore, to maintain same profits as before, increased contribution can be given as advertisement expense maximum increase advertisement expense $45,000