ACG 5075-Data for Hermann Corporation are shown below
Data for Hermann Corporation are shown below:
Per Unit
Percent
of Sales
Selling price
$
110
100%
Variable expenses
77
70%
Contribution margin
$
33
30%
Fixed expenses are $82,000 per month and the company is selling 3,500 units per month.
1-a. The marketing manager argues that a $8,700 increase in the monthly advertising budget would increase monthly sales by $18,500. Calculate the increase or decrease in net operating income.
Net operating income _____? By ____?
1-b. Should the advertising budget be increased? Yes or No?
2-a. Refer to the original data. Management is considering using higher-quality components that would increase the variable expense by $5 per unit. The marketing manager believes that the higher-quality product would increase sales by 20% per month. Calculate the change in total contribution margin.
Total contribution margin ______? By______?
Should the higher-quality components be used? Yes or No?
