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Exercise 5-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO5-4] [The following information applies to the questions displayed below.] Data for Hermann

Exercise 5-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO5-4]

[The following information applies to the questions displayed below.]

Data for Hermann Corporation are shown below:

Per Unit Percent of Sales
Selling price $ 90 100%
Variable expenses 63 70%
Contribution margin $ 27 30%

Fixed expenses are $30,000 per month and the company is selling 2,000 units per month.

References

Section BreakExercise 5-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO5-4]

2.

Exercise 5-5 Part 1

Required:

1-a.

The marketing manager argues that a $5,000 increase in the monthly advertising budget would increase monthly sales by $9,000. Calculate the increase or decrease in net operating income.

1-b. Should the advertising budget be increased ?
Yes
No

3.

value: 5.00 points

Required information

Exercise 5-5 Part 2

2-a.

Refer to the original data. Management is considering using higher-quality components that would increase the variable expense by $2 per unit. The marketing manager believes that the higher-quality product would increase sales by 10% per month. Calculate the change in total contribution margin.

2-b. Should the higher-quality components be used?
Yes
No

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