Data for Hermann Corporation are shown below Per Unit $135 81 Percent of Sales 1

Question

Data for Hermann Corporation are shown below Per Unit $135 81 Percent of Sales 100% 60% Selling price Variable expenses Contribution margin 54 40% Fixed expenses are $87,000 per month and the company is selling 2,900 units per month value 9.09 points Required: 1-a. The marketing manager argues that a $9,200 increase in the monthly advertising budget would increase monthly sales by $21,000. Calculate the increase or decrease in net operating income. Net operating income 1-b. Should the advertising budget be increased? Yes O No

Explanation / Answer

1-a) increase in contribution (21000*40%)= 8400 less increase in advertising budget -9,200 Net operating income Decrease by -800 answer Net operating income decrease by $800 1-b) No 2900 3480 2) old perunit new per unit sales 391500 135 469800 135 Variable expenses 234900 81 299280 86 contribution 156600 54 170520 49 total contriution margin increases by 13920 2-b) yes

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