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Data for Hermann Corporation are shown below: Percent of Sales 100% Selling price Variable expenses Contribution margin Per UData for Hermann Corporation are shown below: Selling price Variable expenses Contribution margin Per Unit $ 60 39 $ 21 Perce

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Answer #1

Solution:

Requirement 1A:

Net Operating Income Decreased by $ 1,549.87

Particulars Original Revised
Sales ( 4200 Units * 60 ) $ 252,000.00 $ 252,000.00
Increased Sales ( 383.33 Units * 60) $    23,000.00
Less:
Variable Expense ( 4200 Units * 39 ) $ 163,800.00 $ 163,800.00
Additional Units Variable Expense ( 383.33 Units * 39) $    14,949.87
Contribution Margin $    88,200.00 $    96,250.13
Less:
Fixed Expense $    72,000.00 $    72,000.00
Advertising Expense Increased $      9,600.00
Net Operating Income / (loss) $    16,200.00 $    14,650.13

Requirement 1B:

The answer is No

Advertise Cost should not be increased. By increasing the advertising cost there is a decrease in net operating income.

Notes:

1) Additional Units = $23,000 / $60 ( Increase in sales / selling price per unit) = 383.33 Units

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