Question

Check my work Exercise 6-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume (L06-4) [The following information applies to the questions displayed below.) Data for Hermann Corporation are shown below: Per Unit $ 90 Percent of Sales 100% Selling price Variable expenses Contribution margin $ 27 30% Fixed expenses are $78,000 per month and the company is selling 3,500 units per month, Exercise 6-5 Part 1 Required: 1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $8,300 and monthly sales increase by $16,500? 1-b. Should the advertising budget be increased? Complete this question by entering your answers in the tabs below. Req 1A Reg 1B < Prev 3° 4 of 12 Next >

Answer 1

Answer 1.a

If the monthly advertising budgetb increases by $8300 and monthly sales increase by$16,500 it will effect the net operating income in the following way:

Particulars Current With Increased Budget Difference

Sales $315000 $ 331500 16500

Variable Expenses $220500 232050 11550

Contribution Margin $ 94500 99450 4950

Fixed Expenses $ 78000   86300 8300

Net Operating Income $ 16500 13150 (3350)

The Net Operating Income will decrease by $3350 per month.

1(b) Since the Net operating Income is decreasing by $3350 if we increase the advertising Budget, the adverstising budget of the company shoild not be increased.