Data for Hermann Corporation are shown below: Per unit Percent of Sales Selling price $90 100% Variable
Question:
Data for Hermann Corporation are shown below:
| Per unit | Percent |
Selling price | $90 | 100% |
Variable expenses | 63 | 70% |
Contribution margin | $27 | 30% |
Fixed expenses are $30,000 per month and the company is selling 2,000 units per month.
1(a). Calculate the increase or decrease in net operating income if a $5,000 increase in the monthly advertising budget would increase monthly sales by $9,000. net operating income: ?
(b). Should the advertising budget be increased as suggested in requirement 1(a) above?
2. Refer to the original data. Management is considering using higher-quality components that would increase the variable cost by $2 per unit. The marketing manager believes the higher-quality product would increase sales by 10% per month. Should the higher-quality components be used?
Managerial Accounting
ISBN: 978-0697789938
13th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer