Data for Hermann Corporation are shown below: Per unit Percent of Sales Selling
ID: 2434937 • Letter: D
Question
Data for Hermann Corporation are shown below:Per unit Percent
of Sales
Selling price $73.00 100%
Variable expenses 36.50
50
Contribution margin $36.50
50%
Fixed expenses are $75,100 per month and the company is selling 4,600 units per month.
Requirement 1:
Calculate the increase or decrease in net operating income if a $7,400 increase in the monthly advertising budget would increase monthly sales by $14,000.(Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)
Net operating income $
Explanation / Answer
Net operating income = Revenue - expenses Before: Revenue: 4,600*$73 = 335,800 Expenses: $75,100 + 4,600*$36.50 = 243,000 Net operating income = 335,800 - 243,000 = $92,800 After advertising: Revenues = $14,000 (extra sales) + 4,600 * $73 = $349,800 Expenses = $14,000*50%(cost of extra sales) + 4,600*$36.50 + $75,100 (fixed cost) + $7,400 (advertising) = 257,400 Net operating income = 349,800 - 257,400 = 91,600 Change net operating income: $91,600 - $92,800 = -$1,200 hope this helps.
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