Data for Hermann Corporation are shown below:

Fixed expenses are $40,000 per month, and the company is selling 2,000 units per month.

Required:

1. The marketing manager argues that a $4,000 increase in the monthly advertising budget would increase monthly sales by $9,000. Should the advertising budget be increased?

2. Refer to the original data. Management is considering using higher-quality components that would increase the variable cost by $2.00 per unit. The marketing manager believes the higher-quality product would increase sales by 10% per month. Should the higher-quality components be used?

Transcribed Image Text:

Per Unit Percentage of Sales 100 Sales price $90 Less: Variable expenses 63 70 Contribution margin 30 $27