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In: Accounting

Data for Hermann Corporation are shown below: Per Unit Percentage of Sales Sales price $90 100...

Data for Hermann Corporation are shown below:

Per Unit

Percentage of Sales

Sales price

$90

100

Less: Variable expenses

  63

  70

Contribution margin

$27

  30

Fixed expenses are $40,000 per month, and the company is selling 2,000 units per month.

Required:

1. The marketing manager argues that a $4,000 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 $2.00 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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Expert Solution

ekkarill92 answered 3 years ago
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