Data for Herron Corporation are shown below:

	Per Unit			Percent of Sales
Selling price	$	130		100%
Variable expenses		78		60%
Contribution margin	$	52		40%

Fixed expenses are $86,000 per month and the company is selling 2,800 units per month.

22.

value: 2.50 points

Required information

Required:
1-a.	The marketing manager believes that an $9,100 increase in the monthly advertising budget would increase monthly sales by $20,500. Calculate the increase or decrease in net operating income.

1-b.

Should the advertising budget be increased?

	No
	Yes

rev: 11_26_2013_QC_41283

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23.

value: 2.50 points

Required information

2-a.	Refer to the original data. Management is considering using higher-quality components that would increase the variable cost by $6 per unit. The marketing manager believes that the higher-quality product would increase sales by 15% per month. Calculate the change in total contribution margin.

2-b.

Should the higher-quality components be used?

	Yes
	No