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Accounting
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Data for Hermann Corporation are shown below:
| Per Unit | Percent of Sales | ||||||
| Selling price | $ | 120 | 100 | % | |||
| Variable expenses | 78 | 65 | |||||
| Contribution margin | $ | 42 | 35 | % | |||
Fixed expenses are $84,000 per month and the company is selling 2,600 units per month.
rev: 06_04_2020_QC_CS-205709, 06_18_2020_QC_CS-216765, 07_14_2020_QC_CS-216765
Required:
1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $8,900 and monthly sales increase by $18,000?
1-b. Should the advertising budget be increased?
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 $5 per unit and increase unit sales by 20%.
2-b. Should the higher-quality components be used?
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