Homework Answers
Answer b: Maximum increased advertisement cost = $119,200
Explanation:
Original net loss = Contribution margin - Fixed manufacturing overhead - Fixed selling and administrative expenses.
= $166,600 - $26,400 - $162,600 = ($22,400).
New Sales = $1,190,000 * 120 % = $1,428,000
New Contribution margin
= New Fixed manufacturing overhead + New Fixed selling and administrative expenses - Original net loss
= $102,000 + $76,000 - $22,400 = $155,600
Calculation of maximum increased advertisement cost
| Amount ($) | Amount ($) | |
|---|---|---|
| New Sales | 1,428,000 | |
| Less : New Contribution margin | 155,600 | |
| New total variable costs | 1,272,400 | |
| Less New Materials ($405,000 * 120%) | 486,000 | |
| Less : New labor ($505,000 * 120%) | 606,000 | |
| Less : New Variable manufacturing o/h ($51,000 * 120%) | 61,200 | |
| Maximum increased advertisement cost | $119,200 |
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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, Sandhill’s break-even point was $1.35 million. On
sales of $1.19 million, its income statement showed a gross profit
of $202,600, direct materials cost of $405,000, and direct labor
costs of $505,000. The contribution margin was $166,600, and
variable manufacturing overhead was $51,000.
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shipped immediately after it is made. For its fiscal year ended
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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.
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