Data for Hermann Corporation are shown below:

	Per Unit	Percent of Sales
Selling price	$	135		100%
Variable expenses		81		60%
Contribution margin	$	54		40%

Fixed expenses are $87,000 per month and the company is selling 2,900 units per month.

Required information

Required:

1-a. The marketing manager argues that a $9,200 increase in the monthly advertising budget would increase monthly sales by $21,000. Calculate the increase or decrease in net operating income.

1-b. Should the advertising budget be increased?

	Yes
	No

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?

	Yes
	No