Question

newconnect.mheducation.com Test # 2 Saved 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 $130 Selling price Variable expenses 78 $52 Contribution margin 40% Fixed expenses are $86,000 per month and the company is selling 2,800 units per montha Required: 1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $9,100 anc monthly sales increase by $20,500? 1-b. Should the advertising budget be increesed? Complete this question by entering your answers in the tabs below Reg 18 Reg 1A How much will net operating income increase (decrease) per month if the monthily advertising budget increases by $9,100 and monthly sales increase by $20,5007 (Do not round intermediate calculations.) by Net operaling income Reg 10 Next of 13 <Prev

Answer 1

Solution 1:

Increase in contribution margin = Increase in sales * contribution margin ratio = $20500*40% = $8,200

Net operating income Decrease by = $8200 - $9100 = - $900

Solution 2:

No, advertising budget should not be increased as there is decrease in net operating income.