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Required information Exercise 6-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO6-4]...

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Accounting

Required information

Exercise 6-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO6-4]

[The following information applies to the questions displayed below.]

Data for Hermann Corporation are shown below:

Per Unit Percent of Sales
Selling price $ 100 100 %
Variable expenses 61 61
Contribution margin $ 39 39 %

Fixed expenses are $80,000 per month and the company is selling 3,700 units per month.

Exercise 6-5 Part 1

Required:

1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $8,500 and monthly sales increase by $17,500?

Net operating income by

1-b. Should the advertising budget be increased?

Yes or No?

Exercise 6-5 Part 2

2-a. 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 $3 per unit and increase unit sales by 15%.

Net operating income by

2-b. Should the higher-quality components be used?

Yes or no

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