Required information [The following information applies to the questions display

Question

Required information

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

Data for Hermann Corporation are shown below:

Fixed expenses are $78,000 per month and the company is selling 3,500 units per month.

Garrison 16e Rechecks 2017-05-02

Required:

1-a. The marketing manager argues that a $8,300 increase in the monthly advertising budget would increase monthly sales by $16,500. Calculate the increase or decrease in net operating income.

1-b. Should the advertising budget be increased?

Per Unit Percent of Sales Selling price $ 90 100 % Variable expenses 63 70 Contribution margin $ 27 30 %

Explanation / Answer

1.Hence decrease in net operating income=(16500-13150)=$3350.

Hence 2.advertising budget should not be increased.

Current Proposed Contribution margin (27*3500)=$94500 (94500+(0.3*16500)=$99450 Less:Fixed expenses (78000) (78000+8300)=(86300) Net operating income $16500 13150

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