Per Unit			Percent of Sales
Selling price	$	115		100%
Variable expenses		69		60%
Contribution margin	$	46		40%

Fixed expenses are $83,000 per month and the company is selling 2,500 units per month.

3.

value: 2.50 points

Required information

Required:
1-a.	The marketing manager argues that a $8,800 increase in the monthly advertising budget would increase monthly sales by $19,000. Calculate the increase or decrease in net operating income.

1-b.

Should the advertising budget be increased?

	Yes
	No

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4.

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 expense by $5 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