Question

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Data for Hermann Corporation are shown below:

    Per Unit   Percent
of Sales
Selling price   $   60      100%
Variable expenses      39      65%
Contribution margin   $   21      35%

Fixed expenses are $72,000 per month and the company is selling 4,200 units per month.

4.value:
10.00 pointsRequired information
Required:

1-a. The marketing manager argues that a $9,600 increase in the monthly advertising budget would increase monthly sales by $23,000. Calculate the increase or decrease in net operating income.

1-b. Should the advertising budget be increased?

   Yes
   No
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5.value:
10.00 pointsRequired information
2-a. Refer to the original data. Management is considering using higher-quality components that would increase the variable expense by $4 per unit. The marketing manager believes that the higher-quality product would increase sales by 25% per month. Calculate the change in total contribution margin.

2-b. Should the higher-quality components be used?

   Yes
   No

Answer 1