Question: Data for Herron Corporation are shown below: Per Unit Percent of Sales Selling price $ 55 100% Variable expenses 33 60% Contribution margin $ 22

Data for Herron Corporation are shown below:

Per Unit Percent of Sales
Selling price $ 55 100%
Variable expenses 33 60%
Contribution margin $ 22 40%

Fixed expenses are $71,000 per month and the company is selling 4,100 units per month.

Required:

1-a.

The marketing manager believes that an $9,500 increase in the monthly advertising budget would increase monthly sales by $22,500. Calculate the increase or decrease in net operating income.

Net operating income: ?

by: ?

2-a.

Refer to the original data. Management is considering using higher-quality components that would increase the variable cost by $4 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.

Total contribution margin: ?

By: ?

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