Task: 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:
Q1.
A) The marketing manager believes that an $8,000 increase in the monthly advertising budget would increase monthly sales by $15,000. Calculate the increase or decrease in net operating income. (Input the amount as a positive value. Omit the "$" sign in your response.)
B) Should the advertising budget be increased?
Q2.
A) Management is considering using higher-quality components that would increase the variable cost by $3 per unit. The marketing manager believes that the higher-quality product would increase sales by 15% per month. Calculate the change in total contribution margin. (Input the amount as a positive value. Omit the "$" sign in your response.)
B) Should the higher-quality components be used?