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

Data for Herron Corporation are shown below:

	Per Unit			Percent of Sales
Selling price	$	55		100%
Variable expenses		33		60%
Contribution margin	$	22		40%

Fixed expenses are $71,000 per month and the company is selling 4,100 units per month.

Required:
1-a.	The marketing manager believes that an $9,500 increase in the monthly advertising budget would increase monthly sales by $22,500. Calculate the increase or decrease in net operating income.

1-b.

Should the advertising budget be increased?

	No
	Yes

Required information

2-a.	Refer to the original data. Management is considering using higher-quality components that would increase the variable cost by $4 per unit. The marketing manager believes that the higher-quality product would increase sales by 25% per month. Calculate the change in total contribution margin.

2-b.

Should the higher-quality components be used?

	Yes
	No