Question
In: Accounting
How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $9,900 and monthly sales increase by $24,500?
Data for Hermann Corporation are shown below:
| Per Unit | Percent of Sales | ||||||
| Selling price | $ | 75 | 100 | % | |||
| Variable expenses | 51 | 68 | |||||
| Contribution margin | $ | 24 | 32 | % | |||
Fixed expenses are $75,000 per month and the company is selling 4,000 units per month.
Required:
How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $9,900 and monthly sales increase by $24,500?
Should the advertising budget be increased?
Solutions
Expert Solution
| Current | Proposed | |
| Sales | (75*4000)=300,000 | (300,000+24500)=324500 |
| Variable expenses | (51*4000)=204000 | (324500*68%)=220660 |
| Contribution margin | 96000 | 103840 |
| Fixed expenses | 75000 | (75000+9900)=84900 |
| Net operating income | 21000 | 18940 |
Hence decrease in Net operating income=(21000-18940)=$2060
Hence advertising budget should not be increased.
ekkarill92 answered 2 years agoRelated Solutions
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