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# [The following information applies to the questions displayed below.] Data for Hermann Corporation are shown below:...

 [The following information applies to the questions displayed below.] Data for Hermann Corporation are shown below:

 Per Unit Percent of Sales Selling price \$ 140 100% Variable expenses 91 65% Contribution margin \$ 49 35%

 Fixed expenses are \$88,000 per month and the company is selling 3,000 units per month.

rev: 06_04_2020_QC_CS-205709, 06_18_2020_QC_CS-216765, 07_14_2020_QC_CS-216765

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 Required: 1-a. The marketing manager argues that a \$9,300 increase in the monthly advertising budget would increase monthly sales by \$21,000. 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? n/r

rev: 06_18_2019_QC_CS-159269, 03_26_2020_QC_CS-205709

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WorksheetDifficulty: 1 EasyLearning Objective: 05-04 Show the effects on net operating income of changes in variable costs, fixed costs, selling price, and volume.

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 2-a. Refer to the original data. Management is considering using higher-quality components that would increase the variable expense by \$6 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? n/r

 1a Increase in monthly sales 21000 X Contribution margin ratio 35% Increase in Contribution margin 7350 Less: Advertising costs 9300 Decrease in in net operating income 1950 1b No, the advertising budget should not be increased
 2a Current Contribution margin 147000 =3000*49 Revised sales units 3600 =3000*1.20 Revised Contribution margin per unit 43 =49-6 Revised Contribution margin 154800 =3600*43 Revised Contribution margin 154800 Less: Current Contribution margin 147000 Total contribution margin increases by 7800 2b Yes, the higher-quality should components be used.

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