Data for Herron Corporation are shown below: 1-a. The marketing manager believes

Question

Data for Herron Corporation are shown below:     

  

  

  

   

  

1-a.

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

2-a.

Management is considering using higher-quality components that would increase the variable cost by $6 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.

  

      

  

  

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

Explanation / Answer

Data for Herron Corporation are shown below:

1-a.

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

2-a.

Management is considering using higher-quality components that would increase the variable cost by $6 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.

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

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