The following information applies to the questions displayed below.] Data for He

Question

The following information applies to the questions displayed below.] Data for Hermann Corporation are shown below: Per Unit Percent of Sales 100% 70% $70 Selling price Variable expenses 49 Contribution margin $21 30% Fixed expenses are $74,000 per month and the company is selling 4,400 units per month. Required 1-a. The marketing manager argues that a $9,800 increase in the monthly advertising budget would increase monthly sales by $24,000. Calculate the increase or decrease in net operating income. Net operating ncome by 1-b.Should the advertising budget be increased? O Yes O No

Explanation / Answer

1.a

Note :

2. Variable Expenses = Revised Sales *70%

3. Fixed Expenses = $ 74,000 + $ 9,800

4.Decrease = $ 18,400 - $ 15,800

1.b The correct answer is No.

This is because there is a decrease in the net operating income.

2.a

Note :

2. Increase in Contribution Margin = $ 93500 - $ 92,400

= $ 1,100

2.b. Yes

This is because there is an increase in the net operating income by $ 1,100

Net Operating Income decreases by 2,600

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