Question

Required information Exercise 5-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume (LO5-4] [The following information applies to the questions displayed below.) Data for Hermann Corporation are shown below: Selling price Variable expenses Contribution margin Per Unit $ 75 51 $ 24 Percent of Sales 100% 68 32% Fixed expenses are $75,000 per month and the company is selling 4,000 units per month. xercise 5-5 Part 1 equired: a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $9.900 and ionthly sales increase by $24,500? 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 $9,900 and monthly sales increase by $24,500? (Do not round intermediate calculations.) Net operating income by Reg 1A Reg 1B

Answer 1

Increase (Decrease) in net operating income

= (Increase in sales* CM ratio) - Increase in fixed Costs

= (24,500*32%) - 9900

Net operating income decreases by 2060

No

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