1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $5,000, the monthly sales volume increases by 100 units, and the total monthly sales increase by $9,000?1-b. Should the advertising budget be increased? Data for Hermann Corporation are shown below:Selling priceVariable expensesContribution marginPercentPer Unit of Sales$ 90100%6370$ 2730%Fixed expenses are $30,000 per month and the company is selling 2,000 units per month.

Contribution means the difference between the selling price and variable cost .

1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $5,000, the monthly sales volume increases by 100 units, and the total monthly sales increase by $9,000? 1-b. Should the advertising budget be increased?

1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $5,000, the monthly sales volume increases by 100 units, and the total monthly sales increase by $9,000? 1-b. Should the advertising budget be increased?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter3: Cost Behavior

Section: Chapter Questions

Problem 26E: Starling Co. manufactures one product with a selling price of 18 and variable cost of 12. Starlings...

See similar textbooks

Related questions

Q: Howard Print Shop prepares the following schedule and financial statements on a yearly basis: Among…

A: Financial statements are documents that show how a firm's financial performance has changed over the…

Q: Comprehensive Insurance Company has two product lines: health insurance and auto insurance. The two…

A: Overhead : Indirect costs incurred while producing goods or services. Overhead costs cannot be…

Q: During the current year, Giatras Electronics recorded credit sales of $700,000. Based on prior…

A: Journal Entry :— It is an act of recording transactions in books of account when transaction…

Q: Periodic inventory by three methods; cost of goods sold The units of an item available for sale…

A: Weighted Average Method is one of the methods of inventory valuation in which it is assumed that…

Q: Honeywell Industries has the following overhead costs and cost drivers. Direct labor hours are…

A: According to the quantity of manufacturing resources used, traditional costing allocates factory…

Q: Mahalo Company manufactures and sells men's Hawaiian style shirts. Each shirt (unit) requires 2.2…

A: DIRCECT LABOUR BUDGETDirect Labour Budget is the estimation of Direct Labour Cost & Direct…

Q: [The following information applies to the questions displayed below] The trial balance for Terry's…

A: Financial statement includes the balance sheet, income statement, and statement of cash flow.. It is…

Q: Oral Roberts Dental Supplies has annual sales of $8,940,000. Sixty percent are on credit. The firm…

A: Average collection period is the number of days required to collect receivables from customer. It is…

Q: Happy Hula manufactures authentic Hawaiian hula skirts that are purchased for traditional Hawaiian…

A: Variable costing means that inventory is valued at variable manufacturing cost and fixed cost is…

Q: On March 20, Oriole's petty cash fund of $119 is replenished when the fund contains $12 in cash and…

A: Petty cash means where the separate cash book is maintained which is usually deals with the small…

Q: Required: 1-3. Prepare the journal entries by Third BancCorp necessitated by the restructuring of…

A: A debt restructuring journal entries is used by the company so that the actual interest earned which…

Q: Required: 1. Prepare an income statement based on the absorption costing concept. 2. Prepare an…

A: Absorption costing refers to a method of costing to account for all the costs of manufacturing. The…

Q: On January 2, 2022, Baker Company purchased land that cost $790,000, a building on the land that…

A: The depreciation expense is charged on the fixed assets as a reduction in the value of the fixed…

Q: Marigold Corporation uses a perpetual inventory system and had inventory worth $73,500 at the…

A: Net Purchases = Inventory purchases - Purchase returns - Discount received

Q: Use the following information to answer the question that follow: Net Income Profit margin A/R…

A: Days' sales in receivables refers to the time that a company will take to collect the cash from its…

Q: Required information Problem 7-45 (LO 7-2) (Algo) [The following information applies to the…

A: Total tax liability is the total amount of taxes that an individual or business owes to the…

Q: Ranns Supply uses a perpetual inventory system. On January 1, its inventory account had a beginning…

A: Inventory means the detailed list or stock of items, goods, or materials held by a business or…

Q: Cole, an unmarried individual with no dependents, has the following income items: Interest income…

A: Income tax liability is the amount of tax that an individual or entity owes to the government based…

Q: Prepare the entry to correct the prior years' depreciation, if necessary. (If no entry is required,…

A: The depreciation expense is charged on fixed assets as reduced value of the fixed asset with usage…

Q: 23) Uptown Department Store uses the perpetual inventory system and has ending inventory with a…

A: Historical Cost$610,000Replacement Cost$598,000Realizable Value$640,000Unadjusted Cost of goods…

Q: Manufactures tires for the Formula I motor racing circuit. For August 2020, it budgeted to…

A: Flexible budget prepared for actual units. This budget is not static in nature and hence is apt for…

Q: Hickory Company manufactures two products—13,000 units of Product Y and 5,000 units of Product Z.…

A: The activity-based costing is a method of distributing overheads between various products or jobs.…

Q: Prepare an amortization schedule for a three-year loan of $96,000. The interest rate is 9 percent…

A: Amortization table is prepared to repay the debt. The debts can be paid in installments or in…

Q: The Dot Corporation has changed its year-end from a calendar year-end to August 31. The income for…

A: Corporate income tax is a tax imposed on the profits or income of corporations and other legal…

Q: Wontaby Ltd. Is extending its credit terms from 30 to 45 days. Sales are expected to increase from…

A: The annual financing cost, also known as the annual cost of financing or annual finance charge, is…

Q: An inexperienced accountant prepared this condensed income statement for Carla Vista Company, a…

A: Income statement is a financial statement that records all the income and expenses of the business…

Q: Dickinson Company decided to discontinue its entire wholesale operations (considered a discontinued…

A: Multi Step Income statement is one of the financial statement being prepared in business. It shows…

Q: Depreciation Methods Sorter Company purchased equipment for $280,000 on January 2, 2019. The…

A: Depreciation is considered as an expense charge on the value of the asset. It decreases the value of…

Q: Annika has $200,000 of QBI from her neighborhood clothing store (a sole proprietorship). Her…

A: A qualified business income (QBI), is the net of business income or loss from the business,…

Q: Als Construction Supply Company has a department that manufactures wood trusses (wood frames used in…

A: Hi studentSince there are multiple subparts asked, we will answer only first three subparts.FIFO…

Q: Blossom Corporation has outstanding 2,100 $1,000 bonds, each convertible into 50 shares of $10 par…

A: Answer:- Journal entry:- A journal entry records the company's financial data into the sequential…

Q: Required Question: If Auto Company wants to maintain product mix in the budget, and given the…

A: Variable costs are those costs which changes with change in level of costs. Fixed costs do not…

Q: Addison, Incorporated makes a single product, an indoor fireplace. Data for last year is as follows:…

A: Fixed costs are costs that remain constant and do not vary with the change in the level of…

Q: Please explain aboug your asnwer. Sheridan Corp. exchanged similar pieces of equipment with Elongo…

A: A non-monetary asset exchange is a transaction where two parties swap assets with or without…

Q: Colby Company makes cases for cell phones of all sizes and types for sale through specialty…

A: Under activity based costing method, the cost is allocated to each activity based on its…

Q: Henry Ang invests HK$27,600 at 6% annual interest, leaving the money invested without withdrawing…

A: Time value of money is one of useful concept being used in accounting. It means a sum of amount…

Q: The following costs result from the production and sale of 4,350 drums manufactured by Tight Drums…

A: Break-even analysis is a financial tool used by businesses to determine the point at which their…

Q: Income Statement Decline in Net Income Express the following comparative income statements in…

A: The gross profit is calculated as the difference between the sales and cost of goods sold. The…

Q: Required Information [The following information applies to the questions displayed below.] Allied…

A: The net sales are calculated as gross sales less sales returns and allowance, sales discounts, etc.…

Q: impson, age 45, is a single individual who is employed full time by Duff Corporation. This year…

A: A precise expense that a taxpayer can deduct from their taxable income to lower the amount of income…

Q: Assume the following beginning inventory, purchases, and sales during the month of April: April 1…

A: Inventory valuation is based on the flow-off issue used by the organization. It can be the first in…

Q: ! Required information [The following information applies to the questions displayed below.]…

A: LIFO method is one of the methods of inventory valuation in which it is assumed that recent or new…

Q: Units Costs Direct materials Direct labora Variable factory overhead Fixed factory overhead Total…

A: The labor variance is the difference between the actual and standard labor costs incurred. The…

Q: Interpreting and Applying Disclosures on Property and Equipment Following are selected disclosures…

A: Fixed assets turnover ratio:It is a financial ratio that measures how efficiently a company uses its…

Q: equired: 1. Prepare the journal entries that would be recorded on July 1 for: a. alternative a. b.…

A: a In this situation we will debit the cash /ac by $600000 and credit the notes payable by…

Q: Required information [The following information applies to the questions displayed below] Monte…

A: Capital acquisition ratio takes into consideration cash flow from operating activities.A cash flow…

Q: During Year 4, Lamb Inc. suffered a tax loss of $(200,000). Lamb qualifies for a two-year loss…

A: To prepare Lamb's entry for the loss carried back on December 31 of Year 4, we need to calculate the…

Q: 2023, en is is currently s

A: The American Opportunity Tax Credit is a tax credit to help pay for education expenses paid for…

Q: On January 1, 2021, Central Industries leased a high-performance conveyer to Dynamic Company for a…

A: A lease is defined as a contractual agreement incorporated between two business entities where one…

Q: Oslo Company prepared the following contribution format income statement based on a sales volume of…

A: Degree of operating leverage is calculated by dividing total contribution margin by net operating…

Question

1-b. Should the advertising budget be increased?

Data for Hermann Corporation are shown below:
Selling price
Variable expenses
Contribution margin
Percent
Per Unit of Sales
$ 90
100%
63
70
$ 27
30%
Fixed expenses are $30,000 per month and the company is selling 2,000 units per month.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Meaning of contribution

VIEW

Step 2: Meaning of fixed cost

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Similar questions

Maple Enterprises sells a single product with a selling price of $75 and variable costs per unit of $30. The companys monthly fixed expenses are $22,500. What is the companys break-even point in units? What is the companys break-even point in dollars? Construct a contribution margin income statement for the month of September when they will sell 900 units. How many units will Maple need to sell in order to reach a target profit of $45,000? What dollar sales will Maple need in order to reach a target profit of $45,000? Construct a contribution margin income statement for Maple that reflects $150,000 in sales volume.
Cadre, Inc., sells a single product with a selling price of $120 and variable costs per unit of $90. The companys monthly fixed expenses are $180,000. What is the companys break-even point in units? What is the companys break-even point in dollars? Prepare a contribution margin income statement for the month of October when they will sell 10,000 units. How many units will Cadre need to sell in order to realize a target profit of $300,000? What dollar sales will Cadre need to generate in order to realize a target profit of $300,000? Construct a contribution margin income statement for the month of August that reflects $2,400,000 in sales revenue for Cadre, Inc.
Faldo Company produces a single product. The projected income statement for the coming year, based on sales of 200,000 units, is as follows: Required: 1. Compute the unit contribution margin and the units that must be sold to break even. Suppose that 30,000 units are sold above the break-even point. What is the profit? 2. Compute the contribution margin ratio and the break-even point in dollars. Suppose that revenues are 200,000 greater than expected. What would the total profit be? 3. Compute the margin of safety in sales revenue. 4. Compute the operating leverage. Compute the new profit level if sales are 20 percent higher than expected. 5. How many units must be sold to earn a profit equal to 10 percent of sales? 6. Assume the income tax rate is 40 percent. How many units must be sold to earn an after-tax profit of 180,000?
Margin of safety Jorgensen Company has sales of 380,000,000, and the break-even point in sales dollars is 323,000,000. Determine Jorgensen Companys margin of safety as a percent of current sales.
Klamath Company produces a single product. The projected income statement for the coming year is as follows: Required: 1. Compute the unit contribution margin and the units that must be sold to break even. 2. Suppose 10,000 units are sold above break-even. What is the operating income? 3. Compute the contribution margin ratio. Use the contribution margin ratio to compute the break-even point in sales revenue. (Note: Round the contribution margin ratio to four decimal places, and round the sales revenue to the nearest dollar.) Suppose that revenues are 200,000 more than expected for the coming year. What would the total operating income be?
Wallace Industries has total contribution margin of $58,560 and net income of $24,400 for the month of April. Wallace expects sales volume to increase by 5% in May. What are the degree of operating leverage and the expected percent change in income for Wallace Industries? 0.42 and 2.2% 0.42and5% 2.4andl2% 2.Sandl3%
The following annual information is for Bressler Corporation: Product X Revenue per unit: $10.00 Variable cost per unit: $5.00 Total fixed costs: $100,000 How many units the company has to sell to achieve an after tax income of $75,000 if the income tax rate is 25%?
Data concerning Ten Enterprises Corporation's single product appear below: Selling price per unit $ 210.00 Variable expense per unit $ 96.50 Fixed expense per month $ 444,990 The unit sales to attain the company's monthly target profit of $29,000 is closest to:
A company reported the following data: • Sales price per unit: $10 • Fixed cost per month: $20,000 Variable cost per unit: $2 How many units must this company sell each month in order to reach a target profit of $50,000?
A company sells one product and its contribution margin ratio is 20%. The company provides the following data regarding their operation: Current sales revenue Expected sales revenue next year Expected increase in net operating income next year $2,760,000 $2,870,400 20% Assuming that there is no change in total fixed expenses, what is the net operating income for the current year? Answer: $(Click to select)
A company sells one product and its contribution margin ratio is 10%. The company provides the following data regarding their operation: Current sales revenue $3,540,000 $3,681,600 Expected sales revenue next year Expected increase in net operating income next year 12% Q. What is the net operating income for the current year? ANS. $
The following annual information is for Dexter Corporation: Product A Revenue per unit: $20.00 Variable cost per unit: $15.00 Total fixed costs: $100,000 How many units does the company have to sell to achieve an after tax income of $75,000 if the income tax rate is 25%?