Required information

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

Data for Hermann Corporation are shown below:

	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.

Garrison 16e Rechecks 2017-05-02

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?

.

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

Data for Hermann Corporation are shown below:

	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.

Garrison 16e Rechecks 2017-05-02

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?

.