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	$	120				100	%
Variable expenses		78				65
Contribution margin	$	42				35	%

Fixed expenses are $84,000 per month and the company is selling 2,600 units per month.

rev: 06_04_2020_QC_CS-205709, 06_18_2020_QC_CS-216765, 07_14_2020_QC_CS-216765

Required:

1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $8,900 and monthly sales increase by $18,000?

1-b. Should the advertising budget be increased?

2-a. 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 $5 per unit and increase unit sales by 20%.

2-b. Should the higher-quality components be used?