Exercise 5-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO5-4]

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

Data for Hermann Corporation are shown below:

	Per Unit				Percent of Sales
Selling price	$	140				100	%
Variable expenses		91				65
Contribution margin	$	49				35	%

Fixed expenses are $88,000 per month and the company is selling 3,000 units per month.

Exercise 5-5 Part 1

Required:

1-a. The marketing manager argues that a $9,300 increase in the monthly advertising budget would increase monthly sales by $21,500. Calculate the increase or decrease in net operating income.

1-b. Should the advertising budget be increased?