Q1) Changes in Variable Costs, Fixed Costs, Selling Price, and Volume Data for Hermann Corporation are given 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 company is selling= 2,000 units per month.
Questions:
1. Marketing manager argues that $5,000 increase in monthly advertising budget would increase monthly sales by $9,000. Must the advertising budget be increased?
2. Refer to original data. Management is thinking of using higher-quality components which would increase variable cost by $2 per unit. Marketing manager thinks higher-quality product would increase sales by 10% per month. Must the higher-quality components be utilized?