Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO4]

Data for Herron Corporation are shown below:

Fixed expenses are $75,000 per month and the company is selling 3,000 units per month.
Required:
1. The marketing manager believes that an $8,000 increase in the monthly advertising budget would increase monthly sales by $15,000. Should the advertising budget be increased?
2. Refer to the original data. Management is considering using higher-quality components that would increase the variable cost by $3 per unit. The marketing manager believes that the higher-quality product would increase sales by 15% per month. Should the higher-quality components be used?

Transcribed Image Text:

Selling price .... Percent Per Unit of Sales $75 100% Variable expenses Contribution margin 45 60% $30 40%