Question

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 $ 90 63 $ 27 70 30% Fixed expenses are $78,000 per month and the company is selling 3,500 units per month. Required: 1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $8,300 and monthly sales increase by $16,500? 1-b. Should the advertising budget be increased? Complete this question by entering your answers in the tabs below. Req 1A Req 1B How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $8,300 and monthly sales increase by $16,500? (Do not round intermediate calculations.) Net operating income

Answer 1

1-a.	Net operating income	decrease by	-$3,350
	Working
		Current Sales	Sales with Additional Advertising Budget
	Sales	$315,000	$331,500
	Variable expenses	$220,500	$232,050
	Contribution margin	$94,500	$99,450
	Fixed expenses	$78,000	$86,300
	Net operating income	$16,500	$13,150	-$3,350
1-b.	The advertising budget should not increase otherwise
	it would lead to a decrease in net operating income of $3,350