Question

please complete all four (1a 1b 2a 2b)

Required information [The following information applies to the questions displayed below.) Data for Hermann Corporation are shown below. Per Unit $ 120 Percent of Sales 1005 Selling price Variable expenses Contribution margin Fixed expenses are $84,000 per month and the company is selling 2,600 units per month Required: 1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $8,900 and monthly sales increase by $19,500? 1-b. Should the advertising budget be increased? Complete this question by entering your answers in the tabs below. Req 1A Reg 1B How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $8,900 and monthly sales increase by $19,500? (Do not round Intermediate calculations.) Net operating income Reg 1A Req 1B >

Answer 1

1A. Increase (Decrease) in net operating income = Contribution margin from additional sales - increase in fixed costs = (19,500*35%) - 8,900 = (2075) Net operating income decreases by $2075

1B. No

2A. Present net operating income = (2600*42) - 84,000 = 25,200 Proposed net operating income = (2600+20%)*(120-83) - 84,000 = 31,440 Net operating income increases by $6240

2B. Yes

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