Question

Required information [The following information applies to the questions displayed below.] Data for Hermann Corporation are shown below: Per Unit Percent of Sales Selling price $ 130 100 % Variable expenses 78 60 Contribution margin $ 52 40 % Fixed expenses are $86,000 per month and the company is selling 2,800 units per month. Garrison 16e Rechecks 2017-05-02 Required: 1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $9,100 and monthly sales increase by $20,500? 1-b. Should the advertising budget be increased?

Answer 1

Requirement: 1a Increased Sales Current sales 364000 384500 Sales Less: Variable cost Contribution margin Less: Fixed expenses 218400 230700 145600 153800 86000 95100 Net Income 59600 58700 Decrease in Net income 900 Decrease in Net income = Current sales Net income - Increased sales Net Income Requirement: 1b Should the advertising budget be increased No