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In: Accounting

How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $5,000 and monthly sales increase by $9,000?

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.

1.       How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $5,000 and monthly sales increase by $9,000?

2.       Refer to the original data. How much will net operating income increase (decrease) per month if the company uses higher- quality components that increase the variable expense by $2 per unit and increase unit sales by 10%.

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