Question

Bramble 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, 2017, Bramble’s break-even point was $1.50 million. On sales of $1.40 million, its income statement showed a gross profit of $280,000, direct materials cost of $400,000, and direct labor costs of $508,000. The contribution margin was $280,000, and variable manufacturing overhead was $49,000.

(a) Calculate the following: (Round intermediate calculations to 2 decimal places e.g. 2.25 and final answers to 0 decimal places, e.g. 1,225.)

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 $102,000 and the fixed selling and administrative expenses were $76,000. The marketing vice president feels that if the company increased its advertising, sales could be increased by 21%. What is the maximum increased advertising cost the company can incur and still report the same income as before the advertising expenditure?

Maximum increased advertising expenditure

$

Answer 1

PART A (1)

Variable Selling and Administrative Expenses = Sales - Direct Material Costs - Direct Labor Costs - Variable Manufacturing Costs - Contribution Margin

Variable Selling and Administrative Expenses = 1,400,000 - 400,000-508,000-49,000-280,000 = $ 163,000

PART A (2)

Fixed Manufacturing Overhead = Sales - Direct Material Costs - Direct Labor Costs - Variable Manufacturing Costs - Gross Profit

= 1,400,000 - 400,000-508,000-49,000-280000 = $ 163,000

PART A (3)

Contribution Ratio = Contribution*100/Sales = 280,000*100/1,400,000 = 20%
Total Fixed Cost = Break Even*Contribution Ratio = 1,400,000*20% = $280,000
Fixed selling and administrative expenses = Total Fixed Cost - Fixed Manufacturing overheads = 280,000 - 163,000 = $117,000

PART B

Maximum Increased Revenue Expenditure = (Current Revenues and Expenses)*(1+Revenue Increase Percentage) - Manufacturing Overhead = (102,000 + 76,000)*(1 + 21%) - 102,000 = $113380

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