Exercise 5-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO4]

[The following information applies to the questions displayed below.]

Data for Herron Corporation are shown below:

	Per Unit			Percent of Sales
Selling price	$	50		100%
Variable expenses		40		80%
Contribution margin	$	10		20%

Fixed expenses are $74,100 per month and the company is selling 3,400 units per month. (Input the amount as a positive value. Do not round intermediate calculations. Round your answer to 2 decimal places.)

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4.

value:
10.00 points

Exercise 5-5 Part 1

Required:
1a.	The marketing manager believes that an $8,500 increase in the monthly advertising budget would increase monthly sales by $13,100. Calculate the increase or decrease in net operating income.

Net operating income

(Click to select) increases decreases by

$

1b.

Should the advertising budget be increased ?

	No
	Yes

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5.

value:
10.00 points

Exercise 5-5 Part 2

2a.	Management is considering using higher-quality components that would increase the variable cost by $5 per unit. The marketing manager believes that the higher-quality product would increase sales by 19% per month. Calculate the change in total contribution margin.

Total contribution margin (Click to select) increases decreases by

$

2b.

Should the higher-quality components be used?

	Yes
	No

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