0 Required information The following information applies to the questions displa
ID: 2543586 • Letter: 0
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0 Required information The following information applies to the questions displayed below. Data for Hermann Corporation are shown below: Percent o Sales 100 65 35% Per Unit Selling price Variable expenses Contribution margin 80 52 s 28 Fixed expenses are $76,000 per month and the company is selling 4,600 units per month. Required: 1-a. The marketing manager argues that a $10,000 increase in the monthly advertising budget would increase monthly sales by $25,000. Calculate the increase or decrease in net operating income. 1-b. Should the advertising budget be increased?Explanation / Answer
Income statement
Sale (80*4600)
368000
COGS(52*4600)
239200
Gross profit
128800
Fixed expense
76000
net income
52800
If the management consider on expending on advertisement it will increase sale by 25000
Number of units = 25000/80 = 312.5
Total sales = 4600 + 312.5 = 4912.5
Income statement
Sale (80*4912.5)
393000
COGS(52*4912.5)
255450
Gross profit
137550
Fixed expense
86000
net income
51550
Net operating income will decrease by = 52800 – 51550 = 1250
Advertisement budget should not be increased.
Income statement
Sale (80*4600)
368000
COGS(52*4600)
239200
Gross profit
128800
Fixed expense
76000
net income
52800
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