Problem: Rock is sold to contractors who use the product in construction projects. Needs to increase sales by advertising. Spend $100,000 advertising campaign. currently sells 25,000 tons for a total revenue of $5,000,000.
Direct Labor...............$1,500,000
Variable production overhead...........200,000
fixed production overhead.................350,000
Selling and admministrative expenses
Variable...................................50,000
fixed........................................300,000
Question 1: Compute break-even point in units (i.e. tons)
Question 2: Compute the contribution margin ratio
Question 3: Will spend $100,000 on advertising and the company expects the advertising to increase sales by $200,000. Should the company increase advertising and Why?