2. Data for ABC are shown below: Sales Variable expenses Contribution margin Per Unit $10 8 2 Percent of Sales 100% 80% 20% Fixed expenses are $7,000 per month and the company is selling 5,000 units per month. Required: 1. The marketing manager believes that an $3,000 increase in the monthly advertising budget would increase monthly sales by $10,000. 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 $1 per unit. The marketing manager believes that the higher-quality product would increase sales by 50% per month. Should the higher-quality components be used? 1. The following table shows the effect of the proposed change in monthly advertising budget: Sales With Current Additional Sales Advertising Difference Sales Variable expenses Contribution margin Fixed expenses. Net operating income 2. The SI increase in variable expenses will cause the unit contribution margin to decrease from $2 to $1 and sales to increase 50% to 6,000 (5,000*1.50) with the following impact on net operating income: 3. ABC has a single product whose selling price is $100 and whose variable expense is $60 per unit. The company's monthly fixed expense is $50,000. Required: 1. Using the equation method, solve for the unit sales that are required to earn a target profit of $10,000. 2. Using the formula method, solve for the dollar sales that are required to earn a target profit of $30,000, 1. The equation method yields the required unit sales, Q, as follows: 2. The formula approach yields the required unit sales as follows