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    CVP analysis

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    Data for Hermann Corporation are shown below:

    *Please see attachment

    Fixed expenses are $74,100 per month and the company is selling 3,400 units per month.

    Requirement 1:

    (a) Calculate the increase or decrease in net operating income if a $9,000 increase in the monthly advertising budget would increase monthly sales by $16,200.(Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)

    (b) Should the advertising budget be increased as suggested in requirement 1(a) above?

    Requirement 2:

    Refer to the original data. Management is considering using higher-quality components that would increase the variable cost by $3 per unit. The marketing manager believes the higher-quality product would increase sales by 19% per month. Should the higher-quality components be used?


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    Solution Summary

    The solution explains the use of CVP analysis to determine the impact on net income