Business, 25.02.2020 22:30 Siris420

Data for Hermann Corporation are shown below:

Per unit Percent of Sales
Selling price $90 100%
Variable expenses 63 70%
Contribution margin $27 30%

Fixed expenses are $30,000 per month and the company is selling 2,000 units per month.

Requirement 1:
(a) Calculate the increase or decrease in net operating income if a $5,000 increase in the monthly advertising budget would increase monthly sales by $9,000.
(b) Should the advertising budget be increased as suggested in the requirement (a) above?
Requirement 2:
Refer to the original data. How much will net operating income increase (decrease) per month if the company uses higher-quality components that increase the variable expense by $2 per unit and increase unit sales by 10%?
Should the higher-quality components be used?

Answers: 2

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Data for Hermann Corporation are shown below:

Per unit Percent of Sales
Selling pr...

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