Question

Required information Exercise 5-5 (Static) Changes in Variable Costs, Fixed Costs, Selling Price, and Volume (L05-4) [The following information applies to the questions displayed below) Data for Hermann Corporation are shown below: 2 Selling price Variable expenses Contribution margin Percent Per Unit of Sales $ 90 100 63 70 $ 27 30% k 1 Fixed expenses are $30,000 per month and the company is selling 2.000 units per month ces Exercise 5-5 (Static) Part 1 Required: 1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $5,000, the monthly sales volume increases by 100 units, and the total monthly sales increase by $9,000? 1-6. Should the advertising budget be increased? Complete this question by entering your answers in the tabs below. < Prev 3 4 of 10 !!! Next >

Answer 1

(1A)

Net operating income

decrease

by

($2,300)

Explanations :-

Increase in sales	$9,000
X Contribution margin	30%
Increase in Contribution	$2,700
Less: Increase in advertising cost	$5,000
Net operating income decrease by	($2,300)

(1B) Advertising budget should not be increased