Xin 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, 2020, Xin’s break-even point was HK$1.3 million. On sales of HK$1.2 million, its income statement showed a gross profit of HK$180,000, direct materials cost of HK$400,000, and direct labor costs of HK$500,000. The contribution margin was HK$180,000, and variable manufacturing overhead was HK$50,000.

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 HK$100,000 and the fixed selling and administrative expenses were HK$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?