Changes in variable costs fixed costs and selling price

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Reference no: EM1311473

Changes in Variable Costs, Fixed Costs, Selling Price, and Volume.

Changes in Variable Costs, Fixed Costs, Selling Price, and Volume
Data for Hermann Corporation are shown below:

	Per Unit	percent of Sales
Selling price	$90	100%
Less 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.

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?
2. Refer to the original data. Management is considering using higher-quality components that would increase the variable cost by $2 per unit. The marketing manager believes the higher-quality product would increase sales by 10% per month. Should the higher-quality components be used?

Reference no: EM1311473

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