What is the maximum amount the company could pay

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Question - Thomas Corporation developed the following income statement using a contribution margin approach:

Thomas Corporation Projected Income Statement For the Current Year

Sales


$750,000

Less variable costs:



Variable manufacturing costs

$280,000


Variable selling costs

120,000


Total variable costs


400,000

Contribution margin


$350,000

Less fixed costs:



Fixed manufacturing costs

$130,000


Fixed selling and administrative costs

80,000


Total fixed costs


210,000

Operating income


$140,000

The projected income statement was based on sales of 100,000 units. Thomas has the capacity to produce 120,000 units during the year.

Required -

A. Determine the break-even point in units.

B. The sales manager believes that the company could increase sales by 8,000 units if the advertising expenditures were increased by $22,000. By how much will income increase or decrease if this plan is put into effect?

C. What is the maximum amount the company could pay for advertising if the sales would really increase by 8,000 units?

Reference no: EM133146993

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