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Q1) Changes in Variable Costs, Fixed Costs, Selling Price, and Volume Data for Hermann Corporation are given below:

Per Unit percent of Sales
Selling price $90 100%
Less variable expenses 63 70
Contribution margin $27 30%

Fixed expenses are $30,000 per month and company is selling= 2,000 units per month.


1. Marketing manager argues that $5,000 increase in monthly advertising budget would increase monthly sales by $9,000. Must the advertising budget be increased?

2. Refer to original data. Management is thinking of using higher-quality components which would increase variable cost by $2 per unit. Marketing manager thinks higher-quality product would increase sales by 10% per month. Must the higher-quality components be utilized?

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