Question

In: Accounting

[The following information applies to the questions displayed below.] Data for Hermann Corporation are shown below:...

[The following information applies to the questions displayed below.]

Data for Hermann Corporation are shown below:


  Per Unit Percent
of Sales
  Selling price    $ 80 100%
  Variable expenses 44   55%
  Contribution margin    $ 36   45%

   

Fixed expenses are $76,000 per month and the company is selling 2,500 units per month.

2.

value:
1.25 points

Required information

Required:

1-a.

The marketing manager argues that a $8,100 increase in the monthly advertising budget would increase monthly sales by $15,500. Calculate the increase or decrease in net operating income.

      

1-b. Should the advertising budget be increased?
Yes
No

Solutions

Expert Solution

  • All working forms part of the answer
  • Amounts are in $
  • Working for Current Scenario

A

Selling price per unit

$80

B

variable expenses per unit

$44

C=A-B

Contribution Margin per unit

$36

D

Units

2500

E=C x D

Total contribution margin

$90000

F

Fixed Expenses

$76000

G=E-F

Net Income

$14000

  • Effect of Marketing Manager on Net Income

A=2500 units x $80

Current Sales

$200000

B (given)

Expected increase

$15500

C=A+B

New expected Sales

$215500

D=C x 55%

Variable expenses (55%)

$118525

E=C-D

Contribution margin

$96975

F

Old Fixed Cost

$76000

G

New Fixed cost (Additional)

$8100

H=E-F-G

New Net Income

$12875

I

Current Net Income (calculated above)

$14000

J=H-I

Increase/(Decrease) in Net operating Income

$(1125)

Hence, the income DECREASES by $1125.

  • Answer 1(b)---- NO

Since, the increasing cost of budget is less than marginal revenue (contribution), budgeted advertising expenses should NOT BE INCREASED.


Related Solutions

[The following information applies to the questions displayed below.] Data for Hermann Corporation are shown below:...
[The following information applies to the questions displayed below.] Data for Hermann Corporation are shown below:   Per Unit Percent of Sales   Selling price    $ 140 100%   Variable expenses 91   65%   Contribution margin    $ 49   35%     Fixed expenses are $88,000 per month and the company is selling 3,000 units per month. Required: 1-a. The marketing manager argues that a $9,300 increase in the monthly advertising budget would increase monthly sales by $21,500. Calculate the increase or decrease in net operating...
QUESTION #45: Required information [The following information applies to the questions displayed below.] Shown below is...
QUESTION #45: Required information [The following information applies to the questions displayed below.] Shown below is information relating to the stockholders' equity of Reeve Corporation as of December 31, 2018: 3.5% cumulative preferred stock, $100 par $ 1,200,000 Common stock, $10 par, 400,000 shares authorized, 148,000 shares issued and outstanding 1,480,000 Additional paid-in capital: Common stock 444,000 Retained earnings (Deficit) (74,000 ) Dividends in arrears 42,000 PART A: How many shares of preferred stock are issued and outstanding? PART B:...
Required information [The following information applies to the questions displayed below.] The following data is provided...
Required information [The following information applies to the questions displayed below.] The following data is provided for Garcon Company and Pepper Company. Garcon Company Pepper Company Beginning finished goods inventory $ 12,600 $ 17,500 Beginning work in process inventory 18,000 20,550 Beginning raw materials inventory (direct materials) 7,400 12,150 Rental cost on factory equipment 30,500 24,700 Direct labor 21,200 41,000 Ending finished goods inventory 17,150 14,100 Ending work in process inventory 25,900 20,200 Ending raw materials inventory 7,100 7,600 Factory...
Required information [The following information applies to the questions displayed below.] The following data is provided...
Required information [The following information applies to the questions displayed below.] The following data is provided for Garcon Company and Pepper Company. Garcon Company Pepper Company Beginning finished goods inventory $ 12,600 $ 17,500 Beginning work in process inventory 18,000 20,550 Beginning raw materials inventory (direct materials) 7,400 12,150 Rental cost on factory equipment 30,500 24,700 Direct labor 21,200 41,000 Ending finished goods inventory 17,150 14,100 Ending work in process inventory 25,900 20,200 Ending raw materials inventory 7,100 7,600 Factory...
Required information [The following information applies to the questions displayed below.] The following data is provided...
Required information [The following information applies to the questions displayed below.] The following data is provided for Garcon Company and Pepper Company. Garcon Company Pepper Company Beginning finished goods inventory $ 12,700 $ 19,600 Beginning work in process inventory 18,800 22,800 Beginning raw materials inventory 7,200 13,200 Rental cost on factory equipment 31,500 24,100 Direct labor 20,800 37,800 Ending finished goods inventory 19,250 13,100 Ending work in process inventory 23,800 21,400 Ending raw materials inventory 6,300 9,800 Factory utilities 10,950...
Required information [The following information applies to the questions displayed below.] The following data is provided...
Required information [The following information applies to the questions displayed below.] The following data is provided for Garcon Company and Pepper Company. Garcon Company Pepper Company Beginning finished goods inventory $ 14,200 $ 17,350 Beginning work in process inventory 15,600 23,400 Beginning raw materials inventory 7,300 11,550 Rental cost on factory equipment 29,750 24,400 Direct labor 24,800 41,400 Ending finished goods inventory 20,900 16,200 Ending work in process inventory 22,300 16,600 Ending raw materials inventory 6,400 7,400 Factory utilities 14,250...
Required information [The following information applies to the questions displayed below.] The following data is provided...
Required information [The following information applies to the questions displayed below.] The following data is provided for Garcon Company and Pepper Company. Garcon Company Pepper Company Beginning finished goods inventory $ 12,700 $ 16,600 Beginning work in process inventory 18,000 23,550 Beginning raw materials inventory 11,500 13,350 Rental cost on factory equipment 27,250 26,950 Direct labor 20,600 43,000 Ending finished goods inventory 20,000 13,500 Ending work in process inventory 25,300 17,200 Ending raw materials inventory 6,200 8,000 Factory utilities 11,550...
Required information [The following information applies to the questions displayed below.] Sombrero Corporation, a U.S. corporation,...
Required information [The following information applies to the questions displayed below.] Sombrero Corporation, a U.S. corporation, operates through a branch in Espania. Management projects that the company’s pretax income in the next taxable year will be $117,200: $90,800 from U.S. operations and $26,400 from the Espania branch. Espania taxes corporate income at a rate of 30 percent. b. Management plans to establish a second branch in Italia. Italia taxes corporate income at a rate of 10 percent. What amount of...
[The following information applies to the questions displayed below.] The following data is provided for Garcon...
[The following information applies to the questions displayed below.] The following data is provided for Garcon Company and Pepper Company. Garcon Company Pepper Company Beginning finished goods inventory $ 13,800 $ 16,000 Beginning work in process inventory 17,300 23,400 Beginning raw materials inventory (direct materials) 8,100 10,500 Rental cost on factory equipment 28,750 24,250 Direct labor 21,000 36,200 Ending finished goods inventory 20,300 16,000 Ending work in process inventory 22,300 17,000 Ending raw materials inventory 6,600 9,400 Factory utilities 12,150...
[The following information applies to the questions displayed below.] The following data is provided for Garcon...
[The following information applies to the questions displayed below.] The following data is provided for Garcon Company and Pepper Company. Garcon Company Pepper Company Beginning finished goods inventory $ 14,500 $ 16,300 Beginning work in process inventory 15,900 19,650 Beginning raw materials inventory 10,500 14,400 Rental cost on factory equipment 28,750 26,500 Direct labor 25,000 42,600 Ending finished goods inventory 20,000 13,000 Ending work in process inventory 23,500 19,600 Ending raw materials inventory 7,200 8,800 Factory utilities 9,150 12,250 Factory...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT