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Data for Hermann Corporation are shown below: Per Unit Percent of Sales Selling price $ 120 100% Variable expenses 78 65% Contribution margin $ 42
Data for Hermann Corporation are shown below: |
Per Unit | Percent of Sales | |||
Selling price | $ | 120 | 100% | |
Variable expenses | 78 | 65% | ||
Contribution margin | $ | 42 | 35% | |
Fixed expenses are $84,000 per month and the company is selling 2,600 units per month. |
3.
Required: | |
1-a. | The marketing manager argues that a $8,900 increase in the monthly advertising budget would increase monthly sales by $19,500. Calculate the increase or decrease in net operating income. |
1-b. | Should the advertising budget be increased? | ||||
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4.
Required information
2-a. | Refer to the original data. Management is considering using higher-quality components that would increase the variable expense by $5 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? | ||||
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