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

Data for Hermann Corporation are shown below:

	Per Unit			Percent of Sales
Selling price	$	80		100%
Variable expenses		52		65%
Contribution margin	$	28		35%

Fixed expenses are $76,000 per month and the company is selling 4,600 units per month.

Required:
1-a.	The marketing manager argues that a $10,000 increase in the monthly advertising budget would increase monthly sales by $25,000. Calculate the increase or decrease in net operating income.

1-b.

Should the advertising budget be increased?

	Yes
	No

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 25% per month. Calculate the change in total contribution margin.

2-b.

Should the higher-quality components be used?

	Yes
	No