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Data for Hermann Corporation are shown below:
Per Unit Percentage of Sales
Sales price $90 100
Less: Variable expenses 63 70
Contribution margin $27 30
Fixed expenses are $40,000 per month, and the company is selling 2,000 units per month.
Question 1: The marketing manager argues that a $4,000 increase in the monthly advertising budget would increase monthly sales by $9,000. Should the advertising budget be increased?
Question 2: Refer to the original data. Management is considering using higher-quality components that would increase the variable cost by $2.00 per unit. The marketing manager believes the higher-quality product would increase sales by 10% per month. Should the higher-quality components be used?
Finally, the costs of Processing and Supervising are combined with the following sales and direct cost data to determine product margins.
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