Question

[The following information applies to the questions displayed below.] Data for Hermann Corporation are shown below: Percent Per Unit of Sales $ 105 Selling price Variable expenses 100% 63 60% $ 42 Contribution margin 40% Fixed expenses are $81,000 per month and the company is selling 3,800 units per month. value: 10.00 points Required: 1-a. The marketing manager argues that a $8,600 increase in the monthly advertising budget would increase monthly sales by $18,000. Calculate the increase or decrease in net operating income. |by Net operating income 1-b. Should the advertising budget be increased? Yes No

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Answer 1

Required: 1a Increased Sales Current sales Sales 399000 417000 239400 Less: Variable cost 250200 Contribution margin Less: Fixed expenses 159600 166800 89600 81000 78600 Net Income 77200 Net Operating income Decrease 1400 Decrease in Net income = Increased sales Net income - Current sales Net Income Required: 1b NO

Requirement: 2a Current sales Increased Sales Sales 399000 478800 Less: Variable cost Contribution margin 239400 305520 159600 173280 Total contribution margin Increased 13680 Increase in Contribution margin = Increased sales Contribution - Current sales Contribution Requirement: 2b Should the higher quality components be used Yes