Question
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 ? | ||||
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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? | ||||
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