Question

Required information [The following information applies to the questions displayed below.] Data for Hermann Corporation are shown below: Selling price Variable expenses Contribution margin Per Unit $ 130 78 Percent of Sales 100% 60 $ 52 40% Fixed expenses are $86,000 per month and the company is selling 2,800 units per month. 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 $19,500? 1-b. Should the advertising budget be increased? Complete this question by entering your answers in the tabs below.

Pls help, question 1a (the answer is not 1300). Managerial accounting.

Answer 1

1. As per the given in the question -

2800 Units Sales $364,000 $ 130 Variable Cost $ 218,400 $ 78 Contribution $ 145,600 $ 52 Fixed Cost $ 86,000 Operating Income $ 59,600 100% 60% 40%

2. If Advertising Expense incurred -

2950 Units Sales $ 383,500 $ 130 Variable Cost $ 227,500 $ 77 Contribution $ 156,000 $ 53 Fixed Cost $ 86,000 Operating Income $ 70,000 100% 60% 40%

Conclusion -

Company needs to increase the advertising budget as it would increase in operating Income by $11,000.