NO 2. Data for ABC are shown below: Per Unit Percent of Sales Sales $10 100% Variable expenses 8 80% Contribution margin 2 20% Fixed expenses are $7,000 per month and the company is selling 5,000 units per month. Required: 1. The marketing manager believes that an $3,000 increase in the monthly advertising budget would increase monthly sales by $10,000. 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 $1 per unit. The marketing manager believes that the higher quality product would increase sales by 50% per month. Should the higher quality components be used? 1. The following table shows the effect of the proposed change in monthly advertising budget: Sales With Current Additional Sales Advertising Difference Sales........... Variable expenses..... Contribution margin Fixed expenses Net operating income ******* 2. The $1 increase in variable expenses will cause the unit contribution margin to decrease from $2 to $1 and sales to increase 50% to 6,000 (5,000*1.50) with the following impact on net operating income