Question

[The following information applies to the questions displayed below.]

Data for Hermann Corporation are shown below:

	Per Unit			Percent of Sales
Selling price	$	125		100%
Variable expenses		80		64%
Contribution margin	$	45		36%

   

Fixed expenses are $85,000 per month and the company is selling 2,700 units per month.

rev: 06_04_2020_QC_CS-205709, 06_18_2020_QC_CS-216765

3.

value:
0.75 points

Required information

Required:
1-a.	The marketing manager argues that a $9,000 increase in the monthly advertising budget would increase monthly sales by $20,000. Calculate the increase or decrease in net operating income. (Round any unit calculations up to the nearest whole unit.)

      

1-b.

Should the advertising budget be increased?

	Yes
	No

rev: 06_18_2019_QC_CS-159269, 03_26_2020_QC_CS-205709

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4.

value:
0.50 points

Required information

2-a.	Refer to the original data. Management is considering using higher-quality components that would increase the variable expense by $5 per unit. The marketing manager believes that the higher-quality product would increase sales by 20% per month. Calculate the change in total contribution margin.

2-b.

Should the higher-quality components be used?

	Yes
	No

Answer 1