Question

Required information [The following information applies to the questions displayed below.) Data for Hermann Corporation are shown below: Percent of Sales 100% 60 Per Unit $ 135 81 $ 54 Selling price Variable expenses Contribution margin 40% Fixed expenses are $87,000 per month and the company is selling 2,900 units per month. Required: 1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $9,200 and monthly sales increase by $21,000? 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 $9,200 and monthly sales increase by $21,000? (Do not round intermediate calculations.) Net operating income Req 1A Req 1B >

Answer 1

1a) Increase profit (loss) = Incremental revenue-Incremental cost

= (21000*40%)-9200

Increase profit (loss) = -800

1b) No

2a) Present net income = (2900*54)-87000 = 69600

proposed net income = (2900*1.20*49)-87000 = 83520

Net operating income increase by (83520-69600) = 13920

2b) Yes