Data for Hermann Corporation are shown below:Per Unit Percent of SalesSelling price ................................. $90 100%Variable expenses ....................... 63 70Contribution margin ..................... $27 30%Fixed expenses are $30,000 per month and the company is selling 2,000 units per month.Required:1. The marketing manager argues that a $5,000 increase in the monthly advertising budget wouldincrease monthly sales by $9,000. Should the advertising budget be increased?2. Refer to the original data. Management is considering using higher-quality components that would increasethe variable cost by $2 per unit. The marketing manager believes the higher-quality product would increasesales by 10% per month. Should the higher-quality components be used?
Data for Hermann Corporation are shown below:
Per Unit Percent of Sales
Selling price ................................. $90 100%
Variable expenses ....................... 63 70
Contribution margin ..................... $27 30%
Fixed expenses are $30,000 per month and the company is selling 2,000 units per month.
Required:
1. The marketing manager argues that a $5,000 increase in the monthly advertising budget would
increase monthly sales by $9,000. 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 $2 per unit. The marketing manager believes the higher-quality product would increase
sales by 10% per month. Should the higher-quality components be used?
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