Question
Data for Hermann Corporation are shown below: Per Unit Percent of Sales Selling price $ 90 100 % Variable expenses 63 70 Contribution margin $
Data for Hermann Corporation are shown below:
Per Unit | Percent of Sales | ||||
Selling price | $ | 90 | 100 | % | |
Variable expenses | 63 | 70 | |||
Contribution margin | $ | 27 | 30 | % | |
1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $5,000, the monthly sales volume increases by 100 units, and the total monthly sales increase by $9,000?
1-b. Should the advertising budget be increased?
2-a. Refer to the original data. How much will net operating income increase (decrease) per month if the company uses higher-quality components that increase the variable expense by $2 per unit and increase unit sales by 10%.
2-b. Should the higher-quality components be used?
Fixed expenses are $30,000 per month and the company is selling 2,000 units per month.
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