EXERCISE 5-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [L05-4] Data for Hermann Corporation are shown below: Per Unit Percent of Sales $90 Selling price .......... Variable expenses ....... Contribution margin ..... 63 100% 70 30% $27 Fixed expenses are $30,000 per month and the company is selling 2,000 units per month. Required: 1. The marketing manager argues that a $5,000 increase in the monthly advertising budget would increase monthly sales by $9,000. Should the advertising budget be increased? Refer to the original data. Management is considering using higher-quality components that would increase the variable expense by $2 per unit. The marketing manager believes that the higher-quality product would increase sales by 10% per month. Should the higher-quality components be used?
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[The following information applies to the questionsdisplayed below.] |
| Data for Hermann Corporation areshown below: |
| Per Unit | Percent of Sales | |||
| Selling price | $ | 105 | 100% | |
| Variableexpenses | 63 | 60% | ||
| Contributionmargin | $ | 42 | 40% | |
| Fixed expenses are $81,000 per month and the company is selling3,800 units per month.
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2-a. | Refer to the original data. Management is considering usinghigher-quality components that would increase the variable expenseby $4 per unit. The marketing manager believes that thehigher-quality product would increase sales by 20% per month.Calculate the change in total contribution margin. |
| 2-b. | Should thehigher-quality components be used? | ||||
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| Data for Hermann Corporation areshown below: |
| Per Unit | Percent of Sales | |||
| Selling price | $ | 125 | 100% | |
| Variableexpenses | 80 | 64% | ||
| Contributionmargin | $ | 45 | 36% | |
| Fixed expenses are $85,000 permonth and the company is selling 2,700 units per month. |
1.
Required information
| Required: | |
1-a. | The marketing manager argues that a $9,000 increase in themonthly advertising budget would increase monthly sales by $20,000.Calculate the increase or decrease in net operating income. |
| 1-b. | Should theadvertising budget be increased? | ||||
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WorksheetDifficulty: 1 EasyLearning Objective:05-04 Show the effects on net operating income of changes invariable costs, fixed costs, selling price, and volume.
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2.
Required information
2-a. | Refer to the original data. Management is considering usinghigher-quality components that would increase the variable expenseby $5 per unit. The marketing manager believes that thehigher-quality product would increase sales by 20% per month.Calculate the change in total contribution margin. |
| 2-b. | Should thehigher-quality components be used? | ||||
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Data for Herron Corporation are shown below:
| Per Unit | Percent of Sales | |||
| Selling price | $ | 130 | 100% | |
| Variable expenses | 78 | 60% | ||
| Contribution margin | $ | 52 | 40% | |
| Fixed expensesare $86,000 per month and the company is selling 2,800 units permonth. |
22.
value:
2.50 points
Required information
| Required: | |
1-a. | The marketing manager believes that an $9,100 increase in themonthly advertising budget would increase monthly sales by $20,500.Calculate the increase or decrease in net operating income. |
| 1-b. | Should theadvertising budget be increased? | ||||
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rev: 11_26_2013_QC_41283
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23.
value:
2.50 points
Required information
2-a. | Refer to the original data. Management is considering usinghigher-quality components that would increase the variable cost by$6 per unit. The marketing manager believes that the higher-qualityproduct would increase sales by 15% per month. Calculate the changein total contribution margin. |
| 2-b. | Should thehigher-quality components be used? | ||||
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