Changes in Variable Costs, Fixed Costs, Selling Price, and Volume
Data for Herron Corporation are shown below:
| Per Unit | Percent of Sales |
Selling price | $75 | 100% |
Variable expenses | 45 | 60% |
Contribution margin | $30 | 40% |
Fixed expenses are$75.000 per month and the company is selling 3,000 units per month.
Required:
1. The marketing manager believes that an $.8000 increase in the monthly advertising budget would increase monthly sales by.$15,000. Should the advertising budget be increased?
2. Refer to the original data. Management is considering using higher-quality components that would increase the variable Cost by $3 per unit. The marketing manager believes that the higher-quality product would increase sales by 15 % per month. Should the higher-quality components be used?
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