[The following information applies to the questionsdisplayed below.]
Data for Hermann Corporation areshown below:
Per Unit Percent
of Sales Selling price $ 105 100% Variableexpenses 63 60% Contributionmargin $ 42 40%
Fixed expenses are $81,000 per month and the company is selling3,800 units per month.
The marketing manager argues that a $8,600 increase in themonthly advertising budget would increase monthly sales by $18,000.Calculate the increase or decrease in net operating income.
1-b. Should theadvertising budget be increased? Yes No
2-a.
Refer to the original data. Management is considering usinghigher-quality components that would increase the variable expenseby $4 per unit. The marketing manager believes that thehigher-quality product would increase sales by 20% per month.Calculate the change in total contribution margin.
2-b. Should thehigher-quality components be used? Yes No
[The following information applies to the questionsdisplayed below.] |
| Data for Hermann Corporation areshown below: |
| Per Unit | Percent of Sales | |||
| Selling price | $ | 105 | 100% | |
| Variableexpenses | 63 | 60% | ||
| Contributionmargin | $ | 42 | 40% | |
| Fixed expenses are $81,000 per month and the company is selling3,800 units per month.
|
2-a. | Refer to the original data. Management is considering usinghigher-quality components that would increase the variable expenseby $4 per unit. The marketing manager believes that thehigher-quality product would increase sales by 20% per month.Calculate the change in total contribution margin. |
| 2-b. | Should thehigher-quality components be used? | ||||
|
Related questions
| Data for Hermann Corporation areshown below: |
| Per Unit | Percent of Sales | |||
| Selling price | $ | 125 | 100% | |
| Variableexpenses | 80 | 64% | ||
| Contributionmargin | $ | 45 | 36% | |
| Fixed expenses are $85,000 permonth and the company is selling 2,700 units per month. |
1.
Required information
| Required: | |
1-a. | The marketing manager argues that a $9,000 increase in themonthly advertising budget would increase monthly sales by $20,000.Calculate the increase or decrease in net operating income. |
| 1-b. | Should theadvertising budget be increased? | ||||
|
References
WorksheetDifficulty: 1 EasyLearning Objective:05-04 Show the effects on net operating income of changes invariable costs, fixed costs, selling price, and volume.
Check my work
2.
Required information
2-a. | Refer to the original data. Management is considering usinghigher-quality components that would increase the variable expenseby $5 per unit. The marketing manager believes that thehigher-quality product would increase sales by 20% per month.Calculate the change in total contribution margin. |
| 2-b. | Should thehigher-quality components be used? | ||||
|
Data for Herron Corporation are shown below:
| Per Unit | Percent of Sales | |||
| Selling price | $ | 130 | 100% | |
| Variable expenses | 78 | 60% | ||
| Contribution margin | $ | 52 | 40% | |
| Fixed expensesare $86,000 per month and the company is selling 2,800 units permonth. |
22.
value:
2.50 points
Required information
| Required: | |
1-a. | The marketing manager believes that an $9,100 increase in themonthly advertising budget would increase monthly sales by $20,500.Calculate the increase or decrease in net operating income. |
| 1-b. | Should theadvertising budget be increased? | ||||
|
rev: 11_26_2013_QC_41283
Hints
References
eBook & Resources
Hint #1
Check my work
23.
value:
2.50 points
Required information
2-a. | Refer to the original data. Management is considering usinghigher-quality components that would increase the variable cost by$6 per unit. The marketing manager believes that the higher-qualityproduct would increase sales by 15% per month. Calculate the changein total contribution margin. |
| 2-b. | Should thehigher-quality components be used? | ||||
|
Exercise 5-5 Changes in Variable Costs, Fixed Costs, SellingPrice, and Volume [LO4]
[The following information applies to the questionsdisplayed below.] |
| Data for HerronCorporation are shown below: |
| Per Unit | Percent of Sales | |||
| Selling price | $ | 50 | 100% | |
| Variable expenses | 30 | 60% | ||
| Contribution margin | $ | 20 | 40% | |
Fixed expenses are $74,300 per month and the company is selling3,500 units per month. (Input the amount as a positivevalue. Do not round intermediate calculations. Round your answer to2 decimal places.)
Exercise 5-5 Part 1
| Required: | |
1a. | The marketing manager believes that an $7,600 increase in themonthly advertising budget would increase monthly sales by $16,900.Calculate the increase or decrease in net operating income. |
| Netoperating income | by | $ |
| 1b. | Should theadvertising budget be increased ? | ||||||||||||||
|
Exercise 5-5 Part 2
2a. | Management is considering using higher-quality components thatwould increase the variable cost by $6 per unit. The marketingmanager believes that the higher-quality product would increasesales by 20% per month. Calculate the change in total contributionmargin. |
| Total contribution margin by | $ |
| 2b. | Should thehigher-quality components be used? | ||||
|
