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Data for Herron Corporation are shown below: Per Unit Percent of Sales Selling price $ 140 100% Variable expenses 91 65% Contribution margin $ 49
Data for Herron Corporation are shown below:
Per Unit | Percent of Sales | |||
Selling price | $ | 140 | 100% | |
Variable expenses | 91 | 65% | ||
| | | | |
Contribution margin | $ | 49 | 35% | |
| | | | |
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Fixed expenses are $88,000 per month and the company is selling 3,000 units per month. |
2.
value: 12.50 points
Required: | |
1-a. | The marketing manager believes that an $9,300 increase in the monthly advertising budget would increase monthly sales by $21,500. Calculate the increase or decrease in net operating income. |
1-b. | Should the advertising budget be increased ? | ||||
|
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3.
value: 12.50 points
2-a. | 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 20% per month. Calculate the change in total contribution margin. |
2-b. | Should the higher-quality components be used? | ||||
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