5-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [L04]

EXERCISE 5-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume (L04) Data for Herron Corporation are shown below: Selling price.... Variable expenses ......... Contribution margin ........ Per Unit $75 45 Percent of Sales 100% 60% 40% 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