Question
Data for Hermann Corporation are shown below: Per unit Percent of Sales Selling price $90 100% Variable expenses 63 70% Contribution margin $27 30% Fixed
Data for Hermann Corporation are shown below:
| Per unit | Percent |
Selling price | $90 | 100% |
Variable expenses | 63 | 70% |
Contribution margin | $27 | 30% |
Fixed expenses are $30,000 per month and the company is selling 2,000 units per month.
1(a). Calculate the increase or decrease in net operating income if a $5,000 increase in the monthly advertising budget would increase monthly sales by $9,000. net operating income: ?
(b). Should the advertising budget be increased as suggested in requirement 1(a) above?
2. Refer to the original data. Management is considering using higher-quality components that would increase the variable cost by $2 per unit. The marketing manager believes the higher-quality product would increase sales by 10% per month. Should the higher-quality components be used?
Step by Step Solution
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Step: 1
1a Calculate increase or decrease in net operating income Therefore the cost of additional advertise...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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