Question: Name on Request Company produces a single product called Thing. The company normally produces and sells 50,000 Things each year at a selling price of $50 per unit, The company's unit costs and total costs at this level is given below:
|
Direct Materials
|
Unit Cost
$15
|
Total Cost
$750,000
|
|
Direct Labor
|
8
|
400,000
|
|
Variable Manufacturing Overhead
|
3
|
150,000
|
|
Fixed Manufacturing Overhead
|
9
|
450,000
|
|
Variable Selling Expenses
|
4
|
200,000
|
|
Fixed Selling Expenses
|
6
|
300,000
|
|
Cost per Unit and Total Cost
|
$45
|
$2,250,000
|
1. Assume Name on Request Company has enough capacity to produce 75,000 Things per year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 30% above the present 50,000 units each year if it is willing to increase its advertising expense by $80,000. Would the increased expense be justified?
Please show all calculations.