Required information

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Data for Hermann Corporation are shown below:

	Per Unit				Percent of Sales
Selling price	$	75				100	%
Variable expenses		51				68
Contribution margin	$	24				32	%

Fixed expenses are $75,000 per month and the company is selling 4,000 units per month.

Required:

1. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $9,900 and monthly sales increase by $24,500?

2. Should the advertising budget be increased?

3. Refer to the original data. How much will net operating income increase (decrease) per month if the company uses higher-quality components that increase the variable expense by $4 per unit and increase unit sales by 25%.

4. Should the higher-quality components be used?