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Required information The following information applies to the questions displayed below.) Data for Hermann Corporation are sh

Complete this question by entering your answers in the tabs below Req 1A Req 1B Should the advertising budget be increased? Y

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Answer #1

Answer:-1-a)- The net operating income will decrease by $500 per month if advertising budget increase by $9500 and monthly sale increases by $22500.

1-b)-No--Advertising budget should not be increased

Explanation:-

Hermann Corporation
Operating income
Current Situation
Particulars Amount
$
Sales 4100 unit*$55 per unit 225500
Less:- Variable cost 4100 unit*$33 per unit 135300
Contribution 90200
Less:- Fixed costs 71000
Net operating income 19200
Hermann Corporation
Operating income
Proposed Situation
Particulars Amount
$
Sales (4100 unit*$55 per unit)+$22500 248000
Less:- Variable cost $248000*60% 148800
Contribution 99200
Less:- Fixed costs 71000
Less:- Advertising expenses 9500
Net operating income 18700
1)-The net operating income will decrease per month by $500 (ie-$19200-$18700).
2)-The advertising budget should not be increased due to decrease in net operating income of $500.
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