Question

Data for Hermann Corporation are shown below:

Selling price: $140
Variable expenses: $91
Contribution margin: $49
Fixed expenses are $88,000 per month, and the company is selling 3,000 units per month.
1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $9,300, the monthly sales volume increases by 100 units, and the total monthly sales increase by $14,000?
a. $7,410 (F)
b. $5,980 (F)
c. $3,640 (F)
d. $2,480 (U)

Answer 1

Net operating income will increase or decrease based on changes in advertising budget, sales volume, and total sales. In this case, the net operating income would increase by $7,410 (F) if the advertising budget increases by $9,300, the sales volume increases by 100 units, and the total sales increase by $14,000.

Step-by-step explanation:

Net operating income will increase or decrease based on changes in advertising budget, sales volume, and total sales.

To calculate the net operating income change:

1. Calculate the change in contribution margin using the formula: (Change in sales volume x contribution margin per unit).

2. Calculate the change in fixed expenses by subtracting the previous fixed expenses from the new fixed expenses.

3. Calculate the change in net operating income by subtracting the change in fixed expenses from the change in contribution margin.

In this case, the net operating income would increase by $7,410 (F) if the advertising budget increases by $9,300, the sales volume increases by 100 units, and the total sales increase by $14,000.