EXERCISE 5-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO4] Data for Herron Corporation are shown below: Selling price Variable expenses Contribution margin Percent Per Unit of Sales $75 100% 45 60% $30 40% Fixed expenses are $75,000 per month and the company is selling 3,000 units per month. Required: 1. The marketing manager believes that an $8,000 increase in the monthly advertising budge would increase monthly sales by $15,000. 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 $3 per unit. The marketing manager believes that the higher-quality product would increase sales by 15% per month. Should the higher-quality components be used? EXERCISE 5-9 Compute and Use the Degree of Operating Leverage [LO8] Eneliko Company installs home theater systems. The company's most recent monthly contribution ormat income statement appears below: Percent Amount of Sales Sales Variable expenses Contribution margin $120,000 100% 84,000 70% 36,000 30% Fixed expenses 24,000 Net operating income $ 12,000 Required: Compute the company's degree of operating leverage. Using the degree of operating leverage, estimate the impact on net operating income of a 10% increase in sales. Verify your estimate from part (2) above by constructing a new contribution format income statement for the company assuming a 10% increase in sales.