The following information applies to the questions displayed below.]

Data for Hermann Corporation are shown below:

Per Unit Percent of Sales

Selling price $95 100%

Variable expenses 57 60%

Contribution margin $38 40%

Required:

1-a. The marketing manager argues that a $8,400 increase in the monthly advertising budget would increase

monthly sales by $17,000. Calculate the increase or decrease in net operating income.

1-b. Should the advertising budget be increased? YES or NO

2-a. Refer to the original data. Management is considering using higher-quality components that would increase the variable expense by $3 per unit. The marketing manager believes that the higher-quality product would increase sales by 10% per month. Calculate the change intotal contribution margin.

2-b. Should the higher-quality components be used? YES or NO