Red Rock, Inc. mines and distributes various types of rocks. Most of the company

Question

Red Rock, Inc. mines and distributes various types of rocks. Most of the company's rock is sold to contractors who use the product in highway construction projects. Aracely Hudson, company president, believes that the company needs to advertise to increase sales. She has proposed a plan to the other managers that Red Rock, Inc. spend $92,000 on a targeted advertising campaign. The company currently sells 26,000 tons of aggregate for total revenue of $5,420,000. Other data related to the company's production and operational costs follow:

Required:

A. Compute the break-even point in units (i.e., tons) for Red Rock, Inc. If required, round interim calculations to 2 decimal places, use your rounded number in subsequent calculations, and round your answer to nearest whole number.

______ tons

B. Compute the contribution margin ratio for Red Rock, Inc. Round your answer to two decimal places. Ensure that answer is entered in decimals and not in percentages.

______

C. If Aracely decides to spend $100,000 on advertising and the company expects the advertising to increase sales by $200,000, should the company increase the advertising?

If the company increases the advertising, the contribution margin will (increase / decrease) by $______ and net income will (increase / decrease) by $_______.

Direct labor $1,460,000 Variable production overhead 230,000 Fixed production overhead 380,000 Selling and administrative expenses: Variable 53,000 Fixed 327,000

Explanation / Answer

total per unit sales 5,420,000 208.46 less Variable expense direct labor 1,460,000 56.15 variable production overhead 230,000 8.85 variable selling & adm expense 53,000 2.04 total variable cost 1,743,000 67.04 contribhtion margin 3,677,000 141.42 total fixed overhead fixed production overhead 380,000 fixed selling & adm expense 327,000 total fixed overhead 707,000 A) BEP(units)    = total fixed cost/contribution margin per unit 707,000/141.42 4999 tons b) contribution margin ratio = contribution/sales 3,6770,000/5,420,000 67.84% c) contribution from increase sales (200,000*67.84%)= 135680 less increased advertising expense 100,000 increase in income 35,680 if the company increases the advertising ,the contribution margin will increase by $135,680 and net income will increase by $35,680

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