Exercise 2-5 (Algo) Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO2-4]

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Data for Hermann Corporation are shown below:

	Per Unit	Percent of Sales
Selling price	$ 110	100%
Variable expenses	77	70
Contribution margin	$ 33	30%

Fixed expenses are $82,000 per month and the company is selling 3,500 units per month.

Exercise 2-5 (Algo) Part 1

Required:

1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $8,700, the monthly sales volume increases by 100 units, and the total monthly sales increase by $11,000?

1-b. Should the advertising budget be increased?