The following Information applies to the questions displayed below. Data for Her

Question

The following Information applies to the questions displayed below. Data for Hermann Corporation are shown below: Percent of Sales 100% 64% Per U Selling price Varlable expenses $ 125 80 Contribution margin $ 45 36% Flxed expenses are $85,000 per month and the company is selling 2.705 units per month $85,000 per month and the company is selling 2,7 units per month. value 20.00 points Required: 1-a. The marketing manager argues that a $9,000 increase in the monthly advertising budget would increase monthly sales by $20,000. Calculate the increase or decrease in net operating income. mien decreases Bils 1000; $1,800 et operating incomedecreases

Explanation / Answer

1.a

Particulars Given data If sales increased by 20000 and increased in advertising

Sales [ 2700 * 125 ] (100%) 337500 357500

less variable expenses (64%) (216000) (228800)

[ 2700 * 80]

Contribution (36%) 121500 128700

less: fixed expenses (85000) (94000)

Net operating income 36500 34700

while, comparing the given data and calculating data net operating income is decreased by 1800

2.a.

sales [2700 * 125 ] = 337500

sales is increased by 20% = 337500 + 337500 *20% = 337500 + 67500 = 405000

Variable expense increased by 5 per unit then 80+5 = 85 = 2700units * 85 = 229500

Total contribution = sales - variable expenses

= 405000 - 229500 = 175500

2.b.yes , higher quality components be used because total contribution is high compared with 1. a contribution.

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