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Mega Electronix 400000

Price: $2.50

Mega Electronix 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, Mega’s break-even point was $2.4 million. On sales of
$2 million, its income statement showed a gross profit of $400,000, direct materials cost of
$600,000, and direct labor costs of $700,000. The contribution margin was $150,000, and
variable manufacturing overhead was $200,000.

(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 15%. 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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