Question

Exercise 5-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume (LO5-4] [The following information applies to the questions displayed below.] Data for Hermann Corporation are shown below: Selling price Variable expenses Contribution margin Percent Per Unit of Sales $ 90 100% 63 $ 27 308 70 Fixed expenses are $30,000 per month and the company is selling 2,000 units per month. Exercise 5-5 Part 1 Required: 1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $5,000 and monthly sales increase by $9,000? 1-b. Should the advertising budget be increased? Complete this question by entering your answers in the tabs below. Req 1A Req 1B How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $5,000 and monthly sales increase by $9,000? Net operating income by

Answer 1

1) Percent of Per Units Sales Selling Price 90 100% Varaible Cost 63 70% Contribution Margin 27 30% Fixed cost (30000) 30000 Sales Units 2000 Increase in sales 9000 Increase in Contribution Margin (9000*30%) 2700 Increase in Fixed Cost 5000 Net operatatin income Decreased by 2300 Should the Advertisement Budget increased NO 2) Increase in Variable Cost By 2.00 Increase Units sales By 10% Increase in Sales Revenue (2000*0.10*90) 18000 Increase in Varaible cost (2000*0.10*65)+(2000*2) 17000 Increase in Contribution MARgin 1000 Net operatatin income Increased by 1000 Should the Higher Quality compopnent be Used YES