Explore BrainMass

# Herron Corporation- contribution margin issues, advertising budget

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

Data for Herron Corporation are shown below:

Per Unit Percent
of Sales
Selling price \$ 75 100%
Variable expenses 45 60%

Contribution margin \$ 30 40%

Fixed expenses are \$75,000 per month and the company is selling 3,000 units per month.

6.
Required:

1-a.

The marketing manager believes that an \$8,000 increase in the monthly advertising budget would increase monthly sales by \$15,000. Calculate the increase or decrease in net operating income. (Input the amount as a positive value. Omit the "\$" sign in your response.)

Net operating income by \$

1-b. Should the advertising budget be increased?

Yes
No

7. 2-a.

Management is considering using higher-quality components that would increase the variable cost by \$3 per unit. The marketing manager believes that the higher-quality product would increase sales by 15% per month. Calculate the change in total contribution margin. (Input the amount as a positive value. Omit the "\$" sign in your response.)

Total contribution margin by \$

2-b. Should the higher-quality components be used?

Yes
No

#### Solution Summary

The expert examines contribution margin issues and advertising budgets Corporation.

\$2.19