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Herron Corporation- contribution margin issues, advertising budget

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.

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