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Kaiser Industries

Price: $2.50

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?

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