Data for Hermann Corporation are shown below:
| |
Per Unit
|
Percent
of Sales
|
|
Selling price
|
$
|
135
|
|
100%
|
|
Variable expenses
|
|
81
|
|
60%
|
|
Contribution margin
|
$
|
54
|
|
40%
|
| |
Fixed expenses are $87,000 per month and the company is selling 2,900 units per month.
Required information
Required:
1-a. The marketing manager argues that a $9,200 increase in the monthly advertising budget would increase monthly sales by $21,000. Calculate the increase or decrease in net operating income.
1-b. Should the advertising budget be increased?
2-a. Refer to the original data. Management is considering using higher-quality components that would increase the variable expense by $5 per unit. The marketing manager believes that the higher-quality product would increase sales by 20% per month. Calculate the change in total contribution margin.
2-b. Should the higher-quality components be used?
Mauro Products distributes a single product, a woven basket whose selling price is $23 and whose variable expense is $17.71 per unit. The company's monthly fixed expense is $15,341.
Required:
1. Solve for the company's break-even point in unit sales using the equation method. (Do not round your intermediate calculations.)
2. Solve for the company's break-even point in dollar sales using the equation method and the CM ratio. (Do not round intermediate calculations. Round "CM ratio percent" to nearest whole percent.)
3. Solve for the company's break-even point in unit sales using the formula method. (Do not round your intermediate calculations.)
4. Solve for the company's break-even point in dollar sales using the formula method and the CM ratio. (Do not round intermediate calculations. Round "CM ratio percent" to nearest whole percent.)