Question

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Required information The following information applies to the questions displayed below.) Data for Hermann Corporation are shown below: Percent of Sales 100% Selling price Variable expenses Contribution margin Per Unit $70 49 $ 21 30% Fixed expenses are $74,000 per month and the company is selling 4,400 units per month Required: 1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $9,800 and monthly sales increase by $24,000? 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 59.800 and monthly sales increase by $24,0002.(Do not round Intermediate calculations Net operating income Req 18 >

Answer 1

Answer- 1A)- The net operating income will decrease by $2600 (ie- $18400-$15800).

Explanation-

CONTRIBUTION FORMAT INCOME STATMENT
PRESENT SCENERIO
PARTICULARS		AMOUNT
		$
Sales	4400 units*$70 per unit	308000
Less- Variable costs	4400 units*$49 per unit	215600
Contribution		92400
Less- Fixed costs		74000
Net operating income		18400
CONTRIBUTION FORMAT INCOME STATMENT
PROPOSED SCENERIO
PARTICULARS		AMOUNT
		$
Sales	(4400 units*$70 per unit)+$24000	332000
Less- Variable costs	$332000*70%	232400
Contribution		99600
Less- Fixed costs	($74000+$9800)	83800
Net operating income		15800

1B)- The advertising budget should not increased.