Kosinksi Manufacturing 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, 2012, Kosinksi's break-even point was $1,350,000. On sales of $1.3 million, its full-cost income statement showed a gross profit of $200,000, direct materials cost of $400,000, and direct labour costs of $500,000. The contribution margin was $117,000, and variable manufacturing overhead was $100,000.
Instructions
(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 15%. Determine the maximum increased advertising cost the company can incur and still report the same income as before the advertising expenditure.