Kaiser Industries carries no inventories. Its product is manufactured only when a customers order is received. It is then shipped


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 $1.3 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 contribution margin was $180,000, 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 $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?

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...

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Managerial Accounting Tools for business decision making

ISBN: 978-1118096895

6th Edition

Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso

Question Details
Chapter # 5
Section: Problem Set A
Problem: 6
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Question Posted: March 22, 2012 02:59:25