Baker Company Developed the Following Income Statement Using a Contribution

Essay

Baker Company developed the following income statement using a contribution margin approach:
Baker Company
Projected Income Statement
For the Current Year Ending December 31 $\begin{array}{lll}\text { Sales (12,000 units) } & & \$ 240,000 \\\text { Less variable costs: } & \$ 60,000 & \\\text { Variable manufacturing costs } & \underline{36,000} & \\\text { Variable selling costs } & & \\\text { Total v ariable costs } & &\underline{96,000}\\\text { Contribution margin }&&\$144,000 \\\text { Less fixed costs: }\\\text { Fixed manufacturing costs } & \$ 85,000 \\\text { Fixed selling and administrative } & \\\text { costs } &\underline{3 5 , 0 0 0} \\\text { Total fixed costs } &&\underline{120,000}\\\text { Operating income }&&\underline{\$24,000}\end{array}$ A. Determine the break-even point in sales dollars.
B. The sales manager believed the company could increase sales by 1,000 units if advertising expenditures were increased by $15,000. By how much will operating income increase or decrease if the advertising is increased as suggested?
C. What is the maximum amount the company could pay for advertising if the advertising would increase sales by 1,000 units?