Topic: Changes in Variable Costs, Fixed Costs, Selling Price, and Volume

Data for Herron Corporation are shown below:

	Per Unit			Percent of Sales
Selling price	$	60		100%
Variable expenses		42		70%
Contribution margin	$	18		30%

Fixed expenses are $74,500 per month and the company is selling 4,200 units per month. (Input the amount as a positive value. Do not round intermediate calculations. Round your answer to 2 decimal places.)

Required: (Show detailed work process)
.	The marketing manager believes that an $7,400 increase in the monthly advertising budget would increase monthly sales by $16,200. Calculate the increase or decrease in net operating income.

Net operating income

Decreases or Increases by:

$ ________

	Should the advertising budget be increased ? _____________

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 13% per month. Calculate the change in total contribution margin.

Total contribution margin increaes/decreases by

$ _______

Should the higher-quality components be used? ___________